Question

Problem 23-2A Preparation and analysis of a flexible budget performance report LO P1, P2, A1

Phoenix Company’s 2017 master budget included the following fixed budget report. It is based on an expected production and sales volume of 16,000 units.

PHOENIX COMPANY Fixed Budget Report For Year Ended December 31, 2017
Sales				$	3,200,000
Cost of goods sold
Direct materials	$	960,000
Direct labor		240,000
Machinery repairs (variable cost)		48,000
Depreciation—Plant equipment (straight-line)		315,000
Utilities ($32,000 is variable)		182,000
Plant management salaries		215,000			1,960,000
Gross profit					1,240,000
Selling expenses
Packaging		64,000
Shipping		96,000
Sales salary (fixed annual amount)		260,000			420,000
General and administrative expenses
Advertising expense		127,000
Salaries		241,000
Entertainment expense		110,000			478,000
Income from operations				$	342,000

Phoenix Company’s actual income statement for 2017 follows.

PHOENIX COMPANY Statement of Income from Operations For Year Ended December 31, 2017
Sales (19,000 units)				$	3,848,000
Cost of goods sold
Direct materials	$	1,157,000
Direct labor		294,000
Machinery repairs (variable cost)		48,000
Depreciation—Plant equipment (straight-line)		315,000
Utilities (fixed cost is $148,000)		185,250
Plant management salaries		225,000			2,224,250
Gross profit					1,623,750
Selling expenses
Packaging		73,250
Shipping		107,000
Sales salary (annual)		277,000			457,250
General and administrative expenses
Advertising expense		135,000
Salaries		241,000
Entertainment expense		113,000			489,000
Income from operations				$	677,500

Required:
1. Prepare a flexible budget performance report for 2017.

Answer 1

PHOENIX COMPANY
Flexible budget performance Report
For the Year Ended Dec 31, 2017
	Flexible Budget	Actual Budget	Variance	Fav./Unfav
Sales (19,000 units) (200 x q)	3,800,000	3,848,000	48,000	Fav.	(3200000/16000) = 200
Variable costs
Direct material (60 x q)	1,140,000	1,157,000	17,000	Unfav.	(960000/16000) = 60
Direct Labor (15 x q)	285,000	294,000	9,000	Unfav.	(240000/16000) = 15
Machinery repairs (variable cost) (3 x q)	57,000	48,000	9,000	Fav.	(48000/16000) = 3
Utilities (2 x q)	38,000	37,250	750	Fav.	(32000/16000) = 2
Packaging (4 x q)	76,000	73,250	2,750	Fav.	(64000/16000) = 4
Shipping (6 x q)	114,000	107,000	7,000	Fav.	(96000/16000) = 6
Total Variable costs	1,710,000	1,716,500	6,500	Unfav.
Contribution margin	2,090,000	2,131,500	41,500	Fav.
Fixed costs
Depreciation-plant equipment	315,000	315,000	-
Utilities	150,000	148,000	2,000	Fav.
Plant management salaries	215,000	225,000	10,000	Unfav.
Sales salaries	260,000	277,000	17,000	Unfav.
Advertising expense	127,000	135,000	8,000	Unfav.
Salaries	241,000	241,000	-
Entertainment expense	110,000	113,000	3,000	Unfav.
Total fixed costs	1,418,000	1,454,000	36,000	Unfav.
Income from operations	672,000	677,500	5,500	Fav.