Question

Crane Corporation’s master (static) budget for the year is shown below:

Sales (60,100 units)				$	1,923,200
Cost of goods sold:
Direct materials	$	174,290
Direct labor		456,760
Overhead (variable overhead        applied at 45% of direct labor cost)		241,000			872,050
Gross profit				$	1,051,150
Selling expenses:
Sales commissions (all variable)	$	162,270
Rent (all fixed)		41,000
Insurance (all fixed)		31,000
General expenses:
Salaries (all fixed)		92,500
Rent (all fixed)		77,500
Depreciation (all fixed)		51,000			455,270
Operating income				$	595,880

Required:

1.	During the year the company manufactured and sold 55,000 units of product. Prepare a flexible budget for this level of output.

       

2.	Now suppose, that the actual level of output was 65,100 units. Prepare a flexible budget for this level of output.

       

Answer 1

Planning Budget:

Selling Price per unit = Sales / Sales Volume
Selling Price per unit = $1,923,200 / 60,100
Selling Price per unit = $32.00

Direct Materials per unit = Direct Materials / Sales Volume
Direct Materials per unit = $174,290 / 60,100
Direct Materials per unit = $2.90

Direct Labor per unit = Direct Labor / Sales Volume
Direct Labor per unit = $456,760 / 60,100
Direct Labor per unit = $7.60

Variable Overhead = 45% * Direct Labor Cost
Variable Overhead = 45% * $456,760
Variable Overhead = $205,542

Fixed Overhead = Total Overhead - Variable Overhead
Fixed Overhead = $241,000 - $205,542
Fixed Overhead = $35,458

Variable Overhead per unit = Variable Overhead / Sales Volume
Variable Overhead per unit = $205,542 / 60,100
Variable Overhead per unit = $3.42

Sales Commissions per unit = Sales Commissions / Sales Volume
Sales Commissions per unit = $162,270 / 60,100
Sales Commissions per unit = $2.70