Question

Phoenix Company’s 2017 master budget included the following fixed budget report. It is based on an expected production and sales volume of 15,000 units.

PHOENIX COMPANY Fixed Budget Report For Year Ended December 31, 2017
Sales				$	3,150,000
Cost of goods sold
Direct materials	$	900,000
Direct labor		240,000
Machinery repairs (variable cost)		45,000
Depreciation—Plant equipment (straight-line)		315,000
Utilities ($45,000 is variable)		195,000
Plant management salaries		190,000			1,885,000
Gross profit					1,265,000
Selling expenses
Packaging		90,000
Shipping		90,000
Sales salary (fixed annual amount)		235,000			415,000
General and administrative expenses
Advertising expense		125,000
Salaries		230,000
Entertainment expense		85,000			440,000
Income from operations				$	410,000

Required:
1&2. Prepare flexible budgets for the company at sales volumes of 14,000 and 16,000 units and classify all items listed in the fixed budget as variable or fixed.

Answer 1

			15000
			Flexible Budget		Flexible budget for:
			Variable	total	unit sales	unit sales
			amount pu	fixed cost	14,000	16,000
Sales			210		2940000	3360000
Variable costs
Direct materials			60		840000	960000
direct labor			16		224000	256000
machinery repairs			3		42000	48000
utilities			3		42000	48000
packaging			6		84000	96000
shipping			6		84000	96000
total variable costs			94		1316000	1504000
contribution margin			116		1624000	1856000
Fixed costs
Depreciation - plant Equipment				315,000	315,000	315,000
Utilities				150000	150000	150000
plant management salaries				190,000	190,000	190,000
Sales salary				235,000	235,000	235,000
Advertising				125,000	125,000	125,000
Salaries				230,000	230,000	230,000
Entertainment expense				85,000	85,000	85,000
total fixed cost				1,330,000	1,330,000	1,330,000
income from operations					294,000	526,000