Question

Phoenix Company’s 2015 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, 2015

Sales				$	3,375,000
Cost of goods sold
Direct materials	$	1,050,000
Direct labor		150,000
Machinery repairs (variable cost)		60,000
Depreciation—plant equipment (straight-line)		330,000
Utilities ($45,000 is variable)		205,000
Plant management salaries		230,000			2,025,000
Gross profit					1,350,000
Selling expenses
Packaging		75,000
Shipping		105,000
Sales salary (fixed annual amount)		260,000			440,000
General and administrative expenses
Advertising expense		129,000
Salaries		251,000
Entertainment expense		90,000			470,000
Income from operations				$	440,000

Phoenix Company’s actual income statement for 2015 follows.

PHOENIX COMPANY Statement of Income from Operations For Year Ended December 31, 2015

Sales (18,000 units)				$	4,128,000
Cost of goods sold
Direct materials	$	1,277,000
Direct labor		188,000
Machinery repairs (variable cost)		64,000
Depreciation—plant equipment (straight-line)		330,000
Utilities (fixed cost is $157,000)		210,500
Plant management salaries		239,000			2,308,500
Gross profit					1,819,500
Selling expenses
Packaging		87,000
Shipping		118,500
Sales salary (annual)		276,000			481,500
General and administrative expenses
Advertising expense		137,000
Salaries		251,000
Entertainment expense		93,000			481,000
Income from operations				$	857,000
Prepare a flexible budget performance report for 2015

Answer 1

Flexible budget performance report
							flexible	actual	Varianace	fav/unfav
							budget	results
Sales			(3375000/15000)*18000				4050000	4,128,000	78,000	F
Variable costs
Direct materials			(1,050,000/15000)*18000				1260000	1,277,000	17,000	U
direct labor			(150000/15000)*18000				180000	188,000	8,000	U
machinery repairs			(60000/15000)*18000				72000	64,000	8,000	F
utilities			(45000/15000)*18000				54000	53500	500	F
packaging			(75000/15000)*18000				90000	87,000	3,000	F
shipping			(105000/15000)*18000				126000	118,500	7,500	F
total variable costs							1782000	1788000	6,000	U
contribution margin							2268000	2340000	72,000	F
Fixed costs
Depreciation - plant Equipment							330,000	330,000	0	N
Utilities							160000	157,000	3,000	F
plant management salaries							230,000	239,000	9,000	U
Sales salary							260,000	276,000	16,000	U
Advertising							129,000	137,000	8,000	U
Salaries							251,000	251,000	0	N
Entertainment expense							90,000	93,000	3,000	U
total fixed cost							1,450,000	1,483,000	33,000	U
income from operations							818,000	857,000	39,000	F