Question

Tempo Company's fixed budget (based on sales of 14,000 units) for the first quarter of calendar year 2017 reveals the following.

	Fixed Budget
Sales (14,000 units)						$	2,940,000
Cost of goods sold
Direct materials		$	336,000
Direct labor			602,000
Production supplies			378,000
Plant manager salary			136,000				1,452,000
Gross profit							1,488,000
Selling expenses
Sales commissions			98,000
Packaging			210,000
Advertising			100,000				408,000
Administrative expenses
Administrative salaries			186,000
Depreciation—office equip.			156,000
Insurance			126,000
Office rent			136,000				604,000
Income from operations						$	476,000

Complete the following flexible budgets for sales volumes of 12,000, 14,000, and 16,000 units. (Round cost per unit to 2 decimal places.)

Answer 1

flexible budgets

		12,000 units	14,000 units	16,000 units
sales	cost per unit	[2940000/14000*12000]= 2520000	2,940,000	[2940000/14000*16000] =3360000
variable costs:
Direct materials	$24	288000	336,000	384000
Direct labor	$43	516000	602,000	688000
Production supplies	$27	324000	378,000	432000
Sales commissions	$7	84000	98,000	112000
Packaging	$15	180000	210,000	240000
Total variable costs	$116	1392000	1624000	1856000
Contribution margin (sales - variable cost)		1128000	1316000	1504000
Fixed costs:
Plant manager salary		136,000	136,000	136,000
Advertising		100,000	100,000	100,000
Administrative salaries		186,000	186,000	186,000
Depreciation—office equip.		156,000	156,000	156,000
Insurance		126,000	126,000	126,000
Office rent		136,000	136,000	136,000
Total fixed costs		840000	840000	840000
Income from operations		288000	476000	664000

Note:- Fixed costs remain same for all levels of output