Question

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

Sales (14,000 units)						$	2,828,000
Cost of goods sold
Direct materials		$	350,000
Direct labor			602,000
Production supplies			378,000
Plant manager salary			150,000				1,480,000
Gross profit							1,348,000
Selling expenses
Sales commissions			112,000
Packaging			224,000
Advertising			100,000				436,000
Administrative expenses
Administrative salaries			200,000
Depreciation—office equip.			170,000
Insurance			140,000
Office rent			150,000				660,000
Income from operations						$	252,000
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.) |Variable Amount Per Unit|Total Cost Fixed|12,000 units|14,000units|16,000u Sales : Variable Costs: Fixed Costs:

Answer 1

The first step is to compute the amount per unit for different line items: (For example sales per unit = $2,828,000/14,000 units = $202 per unit.)

	Amount (in $)	Units	Amount per unit = total amount/14,000 units
Sales	2,828,000.00	14,000.00	202.00
Direct materials	350,000.00		25.00
Direct labor	602,000.00		43.00
Production supplies	378,000.00		27.00
Sales commission	112,000.00		8.00
Packaging	224,000.00		16.00

The next step is to determine total variable costs for different levels of production. So direct materials cost for production of 12,000 units will be = $25*12000 = $300,000

	Amount per unit	Total @ 12,000 units	Total @ 14,000 units	Total @ 16,000 units
Sales	202.00	2,424,000.00	2,828,000.00	3,232,000.00
Direct materials	25.00	300,000.00	350,000.00	400,000.00
Direct labor	43.00	516,000.00	602,000.00	688,000.00
Production supplies	27.00	324,000.00	378,000.00	432,000.00
Sales commission	8.00	96,000.00	112,000.00	128,000.00
Packaging	16.00	192,000.00	224,000.00	256,000.00

Fixed costs will remain constant and will not change.

So the flexible budgets are shown below:

			Flexible budget at
	Variable amount per unit	Total fixed costs	12000 units	14000 units	16000 units
Sales	202.00		2,424,000.00	2,828,000.00	3,232,000.00
Variable costs:
Direct material	25.00		300,000.00	350,000.00	400,000.00
Direct labor	43.00		516,000.00	602,000.00	688,000.00
Production supplies	27.00		324,000.00	378,000.00	432,000.00
Sales commission	8.00		96,000.00	112,000.00	128,000.00
Packaging	16.00		192,000.00	224,000.00	256,000.00
Total variable costs	119.00		1,428,000.00	1,666,000.00	1,904,000.00
Contribution margin	83.00		996,000.00	1,162,000.00	1,328,000.00
Fixed costs:
Plant manager salary		150,000.00	150,000.00	150,000.00	150,000.00
Advertising		100,000.00	100,000.00	100,000.00	100,000.00
Administrative salaries		200,000.00	200,000.00	200,000.00	200,000.00
Depreciation		170,000.00	170,000.00	170,000.00	170,000.00
Insurance		140,000.00	140,000.00	140,000.00	140,000.00
Office rent		150,000.00	150,000.00	150,000.00	150,000.00
Total fixed costs		910,000.00	910,000.00	910,000.00	910,000.00
Income from operations (Contribution margin - total fixed costs)			86,000.00	252,000.00	418,000.00