Question

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 $ 900,000 Direct labor 210,000 Machinery repairs (variable cost) 45,000 Depreciation—Plant equipment (straight-line) 330,000 Utilities ($45,000 is variable) 180,000 Plant management salaries 190,000 1,855,000 Gross profit 1,145,000 Selling expenses Packaging 90,000 Shipping 105,000 Sales salary (fixed annual amount) 235,000 430,000 General and administrative expenses Advertising expense 150,000 Salaries 230,000 Entertainment expense 80,000 460,000 Income from operations $ 255,000 Required: 1&2. Prepare flexible budgets for the company at sales volumes of 14,000 and 16,000 units and classify all items listed in the fixed budget as variable or fixed.

Answer 1

Solution 1&2:

Phoenix Company
Flexible Budget for 2017
Particulars	Volume - 14000 units	Volume - 16000 units
Sales	$2,800,000.00	$3,200,000.00
Variable costs:
Direct materials	$840,000.00	$960,000.00
Direct labor	$196,000.00	$224,000.00
Machinery repairs	$42,000.00	$48,000.00
Utilities	$42,000.00	$48,000.00
Packaging	$84,000.00	$96,000.00
Shipping	$98,000.00	$112,000.00
Total Variable costs	$1,302,000.00	$1,488,000.00
Contribution margin	$1,498,000.00	$1,712,000.00
Fixed Costs:
Depreciation—Plant equipment	$330,000.00	$330,000.00
Utilities	$135,000.00	$135,000.00
Plant management salaries	$190,000.00	$190,000.00
sales salaries	$235,000.00	$235,000.00
Advertising expense	$150,000.00	$150,000.00
Salaries	$230,000.00	$230,000.00
Entertainment expense	$80,000.00	$80,000.00
Total Fixed Costs	$1,350,000.00	$1,350,000.00
Net Operating Income	$148,000.00	$362,000.00