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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				$	3,000,000
Cost of goods sold
Direct materials	$	915,000
Direct labor		240,000
Machinery repairs (variable cost)		45,000
Depreciation—Plant equipment (straight-line)		300,000
Utilities ($60,000 is variable)		195,000
Plant management salaries		210,000			1,905,000
Gross profit					1,095,000
Selling expenses
Packaging		75,000
Shipping		90,000
Sales salary (fixed annual amount)		235,000			400,000
General and administrative expenses
Advertising expense		150,000
Salaries		241,000
Entertainment expense		85,000			476,000
Income from operations				$	219,000

The company’s business conditions are improving. One possible result is a sales volume of 18,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2017 budgeted amount of $219,000 if this level is reached without increasing capacity?

	PHOENIX COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2017 Sales (in units) 15,000 18,000 -1 Contribution margin (per unit) Contribution margin Fixed costs Operating income

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)

Answer 1

Answer:

PHOENIX COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2017
Sales (in units)	$15,000	$18,000	-1
Contribution margin (per unit)	$105	$105
Contribution margin	$1,575,000	$1,890,000
Fixed costs	$1,356,000	$1,356,000
Operating income	$219,000	$534,000
PHOENIX COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2017
Sales (in units)	$15,000	$12,000
Contribution margin (per unit)	$105	$105
Contribution margin	$1,575,000	$1,260,000
Fixed costs	$1,356,000	$1,356,000
Operating income (loss)	$219,000	($96,000)

Calculations:

		Total amount	Per unit
Sales		3,000,000	200	[3,000,000/15,000]
Variable costs:
Direct materials	915,000
Direct labor	240,000
Machinery repairs (variable cost)	45,000
Utilities	60,000
Packaging	75,000
Shipping	90,000
Total variable costs		1,425,000	95	[1,425,000/15,000]
Contribution margin		1,575,000	105	[1,575,,000/15,000]
Fixed costs:
Depreciation—Plant equipment	300,000
Utilities [195,000-60,000]	135,000
Plant management salaries	210,000
Sales salary (fixed annual amount)	235,000
Advertising expense	150,000
Salaries	241,000
Entertainment expense	85,000
Total fixed costs		1,356,000
Net operating income		219,000