In: Accounting
[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 |
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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.)
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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 |