Gibson Manufacturing Company established the following standard price and cost data. Sales price $ 8.60 per...

Gibson Manufacturing Company established the following standard price and cost data.


Sales price	$	8.60	per unit
Variable manufacturing cost	$	3.10	per unit
Fixed manufacturing cost	$	2,600	total
Fixed selling and administrative cost	$	900	total

Gibson planned to produce and sell 2,800 units. Actual production and sales amounted to 3,100 units.

Required

Prepare the pro forma income statement in contribution format that would appear in a master budget.
Prepare the pro forma income statement in contribution format that would appear in a flexible budget.

Prepare the pro forma income statement in contribution format that would appear in a master budget.

GIBSON MANUFACTURING COMPANY
Pro Forma Income Statement
	Master Budget 2,800 Units


	0



	$0

Prepare the pro forma income statement in contribution format that would appear in a flexible budget.

GIBSON MANUFACTURING COMPANY
Pro Forma Income Statement
	Flexible Budget 3,100 Units


	0



	$0

Expert Solution

Ans. A	GIBSON MANUFACTURING COMPANY
	Pro Forma Income Statement
	Master Budget 2,800 units
	Particulars	Amount	Amount
	Sales ($8.60 * 2,800)		$24,080
	Less: Variable manufacturing cost ($3.10 * 2,800)		$8,680
	Contribution margin		$15,400
	Less: Fixed costs:
	Manufacturing	$2,600
	Selling and administrative	$900
	Total fixed cost		$3,500
	Net operating income		$11,900

	*Master budger is prepared on the basis of planned units produced and sold.
	*Fixed costs always remian constant.
	Sales = Planned units sold Selling price
	Variable cost = Planned units sold variable manufacturing cost per unit

Ans. B	GIBSON MANUFACTURING COMPANY
	Pro Forma Income Statement
	Flexible Budget 3,100 units
	Particulars	Amount	Amount
	Sales ($8.60 * 3,100)		$26,660
	Less: Variable manufacturing cost ($3.10 * 3,100)		$9,610
	Contribution margin		$17,050
	Less: Fixed costs:
	Manufacturing	$2,600
	Selling and administrative	$900
	Total fixed cost		$3,500
	Net operating income		$13,550

	*Flexible budger is prepared on the basis of actual units produced and sold.
	*Fixed costs always remian constant.
	Sales = Actual units sold Selling price
	Variable cost = Actual units sold variable manufacturing cost per unit

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