Question

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

Sales (60,500 units)				$	2,178,000
Cost of goods sold:
Direct materials	$	199,650
Direct labor		484,000
Overhead (variable overhead applied at 30% of direct labor cost)		245,000			928,650
Gross profit				$	1,249,350
Selling expenses:
Sales commissions (all variable)	$	161,656
Rent (all fixed)		45,000
Insurance (all short-term fixed)		35,000
General expenses:
Salaries (all short-term fixed)		94,500
Rent (all short-term fixed)		79,500
Depreciation (all short-term fixed)		55,000			470,656
Operating income				$	778,694

Required:

1. During the year, the company manufactured and sold 55,500 units of product. Prepare a flexible budget for this level of output.

2. Now suppose that the actual level of output was 65,500 units. Prepare a flexible budget for this output level.

Answer 1

Particulars	Per unit	a. 55500	b. 65500
Units sold		55,500	65,500
Sales	36.00	1,998,000	2,358,000
Cost of goods sold:
Direct materials	3.30	183,150	216,150
Direct labor	8.00	444,000	524,000
Variable overhead	2.00	111,000	131,000
Fixed overhead		124,000	124,000
Cost of goods sold		862,150	995,150
Gross profit		1,135,850	1,362,850
Selling and general:
Sales commissions	2.67	148,296	175,016
Rent		45,000	45,000
Salaries		94,500	94,500
Rent		79,500	79,500
Depreciation		55,000	55,000
Total expenses		422,296	449,016
Operating income		713,554	913,834