Question

Problem 23-2A Preparation and analysis of a flexible budget performance report LO P1, P2, A1 Phoenix Company’s 2017 master budget included the following fixed budget report. It is based on an expected production and sales volume of 18,000 units. PHOENIX COMPANY Fixed Budget Report For Year Ended December 31, 2017 Sales $ 4,050,000 Cost of goods sold Direct materials $ 990,000 Direct labor 270,000 Machinery repairs (variable cost) 72,000 Depreciation—Plant equipment (straight-line) 315,000 Utilities ($54,000 is variable) 214,000 Plant management salaries 215,000 2,076,000 Gross profit 1,974,000 Selling expenses Packaging 90,000 Shipping 126,000 Sales salary (fixed annual amount) 260,000 476,000 General and administrative expenses Advertising expense 126,000 Salaries 251,000 Entertainment expense 90,000 467,000 Income from operations $ 1,031,000 Phoenix Company’s actual income statement for 2017 follows. PHOENIX COMPANY Statement of Income from Operations For Year Ended December 31, 2017 Sales (21,000 units) $ 4,788,000 Cost of goods sold Direct materials $ 1,172,000 Direct labor 323,000 Machinery repairs (variable cost) 75,000 Depreciation—Plant equipment (straight-line) 315,000 Utilities (fixed cost is $157,500) 219,750 Plant management salaries 225,000 2,329,750 Gross profit 2,458,250 Selling expenses Packaging 102,500 Shipping 139,000 Sales salary (annual) 276,000 517,500 General and administrative expenses Advertising expense 134,000 Salaries 251,000 Entertainment expense 93,500 478,500 Income from operations $ 1,462,250 Required: 1. Prepare a flexible budget performance report for 2017

Answer 1

Solution:

Phoenix Company
Flexible Budget Performance Report
For the year ended Dec 31, 2017
Particulars	Flexible Budget	Actual results	Variances	Fav. / Unfav.
Sales	$4,725,000.00	$4,788,000.00	$63,000.00	Favorable
Variable Costs:
Direct Materials	$1,155,000.00	$1,172,000.00	$17,000.00	Unfavorable
Direct Labor	$315,000.00	$323,000.00	$8,000.00	Unfavorable
Machinery Repairs	$84,000.00	$75,000.00	$9,000.00	Favorable
Utilities	$63,000.00	$62,250.00	$750.00	Favorable
Packaging	$105,000.00	$102,500.00	$2,500.00	Favorable
Shipping	$147,000.00	$139,000.00	$8,000.00	Favorable
Total Variable Costs:	$1,869,000.00	$1,873,750.00	$4,750.00	Unfavorable
Contribution	$2,856,000.00	$2,914,250.00	$58,250.00	Favorable
Fixed Costs:
Depreciation - Plant & Equipment	$315,000.00	$315,000.00	$0.00	Neither favorable nor unfavorable
Utilities	$160,000.00	$157,500.00	$2,500.00	Favorable
Plant mangement salaries	$215,000.00	$225,000.00	$10,000.00	Unfavorable
Sales Salary	$260,000.00	$276,000.00	$16,000.00	Unfavorable
Advertising Expense	$126,000.00	$134,000.00	$8,000.00	Unfavorable
Salaries	$251,000.00	$251,000.00	$0.00	Neither favorable nor unfavorable
Entertainment Expenses	$90,000.00	$93,500.00	$3,500.00	Unfavorable
Total Fixed Costs	$1,417,000.00	$1,452,000.00	$35,000.00	Unfavorable
Net Operating Income	$1,439,000.00	$1,462,250.00	$23,250.00	Favorable