Question

In: Accounting

Tempo Company's fixed budget (based on sales of 16,000 units) for the first quarter reveals the...

Tempo Company's fixed budget (based on sales of 16,000 units) for the first quarter reveals the following.

Fixed Budget
Sales (16,000 units × $216 per unit) $ 3,456,000
Cost of goods sold
Direct materials $ 400,000
Direct labor 672,000
Production supplies 432,000
Plant manager salary 200,000 1,704,000
Gross profit 1,752,000
Selling expenses
Sales commissions 128,000
Packaging 256,000
Advertising 100,000 484,000
Administrative expenses
Administrative salaries 250,000
Depreciation—office equip. 220,000
Insurance 190,000
Office rent 200,000 860,000
Income from operations $ 408,000


(1) Compute the total variable cost per unit.
(2) Compute the total fixed costs.
(3) Compute the income from operations for sales volume of 14,000 units.

Solutions

Expert Solution

Correct Answer:

Total Variable Costs

$ 118.00

Total Fixed Costs

$   1,160,000.00

TEMPO COMPANY

Flexible Budget

For the quarter ended March 31 2017

14000 Units

Sales

$ 3,024,000.00

Variable costs

Direct material

$     350,000.00

Direct Labor

$     588,000.00

Production Supplies

$     378,000.00

Sales commission

$     112,000.00

packaging

$     224,000.00

Total Variable costs

$ 1,652,000.00

Contribution margin

$ 1,372,000.00

Fixed Costs

Plant manager's salary

$     200,000.00

Advertising

$     100,000.00

Administrative salaries

$     250,000.00

Depreciation-Office equipment

$     220,000.00

Insurance

$     190,000.00

Office rent

$     200,000.00

Total Fixed Costs

$ 1,160,000.00

Income From operations

$     212,000.00

Working:

Variable cost per unit = variable cost / no. of units sold.

For example:

Variable cost per unit for Direct material will be = $ 400,000 / 16000 = $ 25

variable Amount per Unit

Variable costs

Direct material

$ 25.00

Direct Labor

$ 42.00

Production Supplies

$ 27.00

Sales commission

$ 8.00

packaging

$ 16.00

Total Variable Costs

$ 118.00

Fixed Costs

Plant manager's salary

$      200,000.00

Advertising

$      100,000.00

Administrative salaries

$      250,000.00

Depreciation-Office equipment

$      220,000.00

Insurance

$      190,000.00

Office rent

$      200,000.00

Total Fixed Costs

$   1,160,000.00

End of answer.

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