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In: Accounting
3. Problem 23-2A Preparation and analysis of a flexible budget performance report LO P1, P2, A1...
3. 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 16,000 units.
| PHOENIX COMPANY Fixed Budget Report For Year Ended December 31, 2017 |
|||||
| Sales | $ | 4,000,000 | |||
| Cost of goods sold | |||||
| Direct materials | $ | 960,000 | |||
| Direct labor | 320,000 | ||||
| Machinery repairs (variable cost) | 64,000 | ||||
| Depreciation—Plant equipment (straight-line) | 330,000 | ||||
| Utilities ($48,000 is variable) | 198,000 | ||||
| Plant management salaries | 215,000 | 2,087,000 | |||
| Gross profit | 1,913,000 | ||||
| Selling expenses | |||||
| Packaging | 80,000 | ||||
| Shipping | 112,000 | ||||
| Sales salary (fixed annual amount) | 260,000 | 452,000 | |||
| General and administrative expenses | |||||
| Advertising expense | 126,000 | ||||
| Salaries | 251,000 | ||||
| Entertainment expense | 110,000 | 487,000 | |||
| Income from operations | $ | 974,000 | |||
Phoenix Company’s actual income statement for 2017
follows.
| PHOENIX COMPANY Statement of Income from Operations For Year Ended December 31, 2017 |
|||||
| Sales (19,000 units) | $ | 4,828,000 | |||
| Cost of goods sold | |||||
| Direct materials | $ | 1,156,000 | |||
| Direct labor | 388,000 | ||||
| Machinery repairs (variable cost) | 68,000 | ||||
| Depreciation—Plant equipment (straight-line) | 330,000 | ||||
| Utilities (fixed cost is $147,000) | 203,500 | ||||
| Plant management salaries | 225,000 | 2,370,500 | |||
| Gross profit | 2,457,500 | ||||
| Selling expenses | |||||
| Packaging | 92,000 | ||||
| Shipping | 125,500 | ||||
| Sales salary (annual) | 279,000 | 496,500 | |||
| General and administrative expenses | |||||
| Advertising expense | 133,000 | ||||
| Salaries | 251,000 | ||||
| Entertainment expense | 113,500 | 497,500 | |||
| Income from operations | $ | 1,463,500 | |||
Required:
1. Prepare a flexible budget performance report
for 2017.
Solutions
Expert Solution
Solution 1:
| Phoenix Company | ||||
| Flexible Budget Performance Report | ||||
| For the year ended Dec 31, 2017 | ||||
| Particulars | Flexible Budget | Actual results | Variances | Fav. / Unfav. |
| Sales | $4,750,000.00 | $4,828,000.00 | $78,000.00 | Favorable |
| Variable Costs: | ||||
| Direct Materials | $1,140,000.00 | $1,156,000.00 | $16,000.00 | Unfavorable |
| Direct Labor | $380,000.00 | $388,000.00 | $8,000.00 | Unfavorable |
| Machinery Repairs | $76,000.00 | $68,000.00 | $8,000.00 | Favorable |
| Utilities | $57,000.00 | $56,500.00 | $500.00 | Favorable |
| Packaging | $95,000.00 | $92,000.00 | $3,000.00 | Favorable |
| Shipping | $133,000.00 | $125,500.00 | $7,500.00 | Favorable |
| Total Variable Costs: | $1,881,000.00 | $1,886,000.00 | $5,000.00 | Unfavorable |
| Contribution | $2,869,000.00 | $2,942,000.00 | $73,000.00 | Favorable |
| Fixed Costs: | ||||
| Depreciation - Plant & Equipment | $330,000.00 | $330,000.00 | $0.00 | Neither favorable nor unfavorable |
| Utilities | $150,000.00 | $147,000.00 | $3,000.00 | Favorable |
| Plant mangement salaries | $215,000.00 | $225,000.00 | $10,000.00 | Unfavorable |
| Sales Salary | $260,000.00 | $279,000.00 | $19,000.00 | Unfavorable |
| Advertising Expense | $126,000.00 | $133,000.00 | $7,000.00 | Unfavorable |
| Salaries | $251,000.00 | $251,000.00 | $0.00 | Neither favorable nor unfavorable |
| Entertainment Expenses | $110,000.00 | $113,500.00 | $3,500.00 | Unfavorable |
| Total Fixed Costs | $1,442,000.00 | $1,478,500.00 | $36,500.00 | Unfavorable |
| Net Operating Income | $1,427,000.00 | $1,463,500.00 | $36,500.00 | Favorable |
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