Question

Phoenix Company’s 2019 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, 2019
Sales				$	3,600,000
Cost of goods sold
Direct materials	$	1,080,000
Direct labor		270,000
Machinery repairs (variable cost)		36,000
Depreciation—Plant equipment (straight-line)		300,000
Utilities ($18,000 is variable)		178,000
Plant management salaries		215,000			2,079,000
Gross profit					1,521,000
Selling expenses
Packaging		54,000
Shipping		90,000
Sales salary (fixed annual amount)		270,000			414,000
General and administrative expenses
Advertising expense		130,000
Salaries		261,000
Entertainment expense		100,000			491,000
Income from operations				$	616,000

Phoenix Company’s actual income statement for 2019 follows.

PHOENIX COMPANY Statement of Income from Operations For Year Ended December 31, 2019
Sales (21,000 units)				$	4,248,000
Cost of goods sold
Direct materials	$	1,276,000
Direct labor		323,000
Machinery repairs (variable cost)		34,000
Depreciation—Plant equipment (straight-line)		300,000
Utilities (fixed cost is $158,000)		178,250
Plant management salaries		225,000			2,336,250
Gross profit					1,911,750
Selling expenses
Packaging		60,250
Shipping		97,000
Sales salary (annual)		286,000			443,250
General and administrative expenses
Advertising expense		137,000
Salaries		261,000
Entertainment expense		103,000			501,000
Income from operations				$	967,500

Required:
1. Prepare a flexible budget performance report for 2019. (Indicate the effect of each variance by selecting for favorable, unfavorable, and No variance.)

Answer 1

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