Question

Pebco Company’s 2011 master budget included the following fixed budget report. It is based on an expected production and sales volume of 15,000 units.

  

PEBCO COMPANY Fixed Budget Report For Year Ended December 31, 2011

Sales				$	3,000,000
Cost of goods sold
Direct materials	$	990,000
Direct labor		225,000
Machinery repairs (variable cost)		75,000
Depreciation—plant equipment		300,000
Utilities ($50,000 is variable)		200,000
Plant management salaries		230,000			2,020,000
Gross profit					980,000
Selling expenses
Packaging		80,000
Shipping		110,000
Sales salary (fixed annual amount)		260,000			450,000
General and administrative expenses
Advertising expense		135,000
Salaries		251,000
Entertainment expense		100,000			486,000
Income from operations				$	44,000

Pebco Company’s actual income statement for 2011 follows.

PEBCO COMPANY Statement of Income from Operations For Year Ended December 31, 2011

Sales (18,000 units)				$	3,663,000
Cost of goods sold
Direct materials	$	1,204,000
Direct labor		278,000
Machinery repairs (variable cost)		82,000
Depreciation—plant equipment		300,000
Utilities (fixed cost is $147,500)		206,750
Plant management salaries		240,000			2,310,750
Gross profit					1,352,250
Selling expenses
Packaging		94,000
Shipping		124,500
Sales salary (annual)		277,000			495,500
General and administrative expenses
Advertising expense		144,000
Salaries		251,000
Entertainment expense		103,500			498,500
Income from operations				$	358,250

  

Required:

1.

Prepare a flexible budget performance report for 2011. (Do not round your intermediate calculations and round your final answers to nearest dollar amount. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

PEBCO COMPANY

Flexible Budget Performance Report

For Year Ended December 31, 2011

	Flexible		Actual
	Budget		Results		Variances
(Click to select)Sales salarySalariesAdvertising expenseUtilitiesSales	$		$		$		(Click to select)UNoneF
Variable costs
(Click to select)Entertainment expenseDirect materialsSales salaryAdvertising expenseDepreciation-plant equipment							(Click to select)UFNone
(Click to select)Advertising expenseEntertainment expenseSalariesDepreciation-plant equipmentDirect labor							(Click to select)NoneFU
(Click to select)Sales salaryDepreciation-plant equipmentMachinery repairsSalariesEntertainment expense							(Click to select)NoneUF
(Click to select)Entertainment expenseSalariesAdvertising expenseUtilitiesSales salary							(Click to select)UNoneF
(Click to select)SalariesPlant management salariesEntertainment expenseAdvertising expensePackaging							(Click to select)FNoneU
(Click to select)ShippingSales salariesEntertainment expensePlant management salariesDepreciation-plant equipment							(Click to select)NoneFU
Total variable costs							(Click to select)NoneUF
(Click to select)Gross marginContribution margin							(Click to select)NoneUF
Fixed costs
(Click to select)Direct materialsShippingPackagingDepreciation-plant equipmentMachinery repairs							(Click to select)NoneUF
(Click to select)Direct materialsDirect laborPackagingShippingUtilities							(Click to select)NoneUF
(Click to select)Direct laborDirect materialsPlant management salariesMachinery repairsShipping							(Click to select)UNoneF
(Click to select)Direct laborPackagingDirect materialsSales salaryMachinery repairs							(Click to select)NoneUF
(Click to select)PackagingDirect materialsShippingAdvertising expenseDirect labor							(Click to select)NoneFU
(Click to select)Direct materialsPackagingMachinery repairsSalariesShipping							(Click to select)UFNone
(Click to select)ShippingPackagingMachinery repairsDirect materialsEntertainment expense							(Click to select)NoneFU
Total fixed costs							(Click to select)UFNone
Income from operations	$		$		$		(Click to select)FUNone

Answer 1

			Flexible budget report
			Variable	total		Flexible	Actual	Variance
			amount	fixed cost		budget	results
			per unit
units						18,000	18,000
Sales			200			3600000	3,663,000	63,000	F
variable costs:
Direct materials			66			1188000	1,204,000	16,000	U
Direct labor			15			270000	278,000	8,000	U
Machinery repair			5			90000	82,000	8000	F
Utilities			3.333333			60000	59,250	750	F
packaging			5.333333			96000	94,000	2000	F
shipping			7.333333			132000	124,500	7500	F
total variable costs			102			1836000	1,841,750	5,750	U
contribution margin			98			1764000	1,821,250	57,250	F
fixed costs:
Depreciation-plant equipment				300,000		300,000	300,000	0	N
utilities				150,000		150,000	147,500	2,500	F
plant management salaries				230,000		230,000	240,000	10,000	U
sales salary				260,000		260,000	277,000	17,000	U
advertising				135,000		135,000	144,000	9,000	U
Salaries				251,000		251,000	251,000	0	N
Entertainment expense				100,000		100,000	103,500	4,000	U
total fixed costs						1,426,000	1,463,000	37,000	U
income from operations						338,000	358,250	20,250	F