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[The following information applies to the questions displayed below.] Phoenix Company’s 2017 master budget included the...

[The following information applies to the questions displayed below.]

Phoenix Company’s 2017 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, 2017
Sales $ 3,150,000
Cost of goods sold
Direct materials $ 975,000
Direct labor 225,000
Machinery repairs (variable cost) 60,000
Depreciation—Plant equipment (straight-line) 315,000
Utilities ($30,000 is variable) 210,000
Plant management salaries 210,000 1,995,000
Gross profit 1,155,000
Selling expenses
Packaging 75,000
Shipping 105,000
Sales salary (fixed annual amount) 235,000 415,000
General and administrative expenses
Advertising expense 125,000
Salaries 230,000
Entertainment expense 90,000 445,000
Income from operations $ 295,000

4. An unfavorable change in business is remotely possible; in this case, production and sales volume for 2017 could fall to 12,000 units. How much income (or loss) from operations would occur if sales volume falls to this level? (Enter any loss with minus sign.)

PHOENIX COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2017
Sales (in units) 15,000 12,000
Contribution margin (per unit)
Contribution margin
Fixed costs
Operating income (loss)

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Solution

PHOENIX COMPANY
Forecasted Contribution Margin Income Statement
For the year ended December 31, 2017
Sales(in units) 15000 12000
Contribution margin per unit $              112.00 $              112.00
Contribution margin $ 1,680,000.00 $ 1,344,000.00
Fixed cost $ 1,385,000.00 $ 1,385,000.00
Operating income $      295,000.00 $      (41,000.00)

Working

PHOENIX COMPANY
Flexible Budget report
For year ended December 31, 2019
Flexible budget Flexible budget for
variable Amount per Unit Total Fixed cost 15000 units 12000 units
Sales $ 210 $ 3,150,000 $ 2,520,000
Variable costs
Direct material $ 65 $ 975,000 $ 780,000
Direct Labor $ 15 $ 225,000 $ 180,000
Machinery repairs $ 4 $ 60,000 $ 48,000
Utilities $ 2 $ 30,000 $ 24,000
Packaging   $ 5 $ 75,000 $ 60,000
Shipping $ 7 $ 105,000 $ 84,000
Total Variable Costs $ 98 $ 1,470,000 $ 1,176,000
Contribution margin $ 112 $ 1,680,000 $ 1,344,000
Fixed costs
Depreciation- Plant equipment $ 315,000 $ 315,000 $ 315,000
Utilities $ 180,000 $ 180,000 $ 180,000
Plant management salaries $ 210,000 $ 210,000 $ 210,000
Sales salaries $ 235,000 $ 235,000 $ 235,000
Advertising expenses $ 125,000 $ 125,000 $ 125,000
Salaries $ 230,000 $ 230,000 $ 230,000
Entertainment expenses $ 90,000 $ 90,000 $ 90,000
Total Fixed costs $ 1,385,000 $ 1,385,000 $ 1,385,000
Income from Operations $ 295,000 -$ 41,000

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