Question

Phoenix Company’s 2019 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, 2019
Sales				$	3,375,000
Cost of goods sold
Direct materials	$	825,000
Direct labor		225,000
Machinery repairs (variable cost)		60,000
Depreciation—Plant equipment (straight-line)		330,000
Utilities ($45,000 is variable)		205,000
Plant management salaries		200,000			1,845,000
Gross profit					1,530,000
Selling expenses
Packaging		75,000
Shipping		105,000
Sales salary (fixed annual amount)		270,000			450,000
General and administrative expenses
Advertising expense		129,000
Salaries		261,000
Entertainment expense		100,000			490,000
Income from operations				$	590,000

Phoenix Company’s actual income statement for 2019 follows.

PHOENIX COMPANY Statement of Income from Operations For Year Ended December 31, 2019
Sales (18,000 units)				$	4,128,000
Cost of goods sold
Direct materials	$	1,006,000
Direct labor		278,000
Machinery repairs (variable cost)		64,000
Depreciation—Plant equipment (straight-line)		330,000
Utilities (fixed cost is $157,500)		211,000
Plant management salaries		210,000			2,099,000
Gross profit					2,029,000
Selling expenses
Packaging		87,250
Shipping		118,000
Sales salary (annual)		287,000			492,250
General and administrative expenses
Advertising expense		136,000
Salaries		261,000
Entertainment expense		103,000			500,000
Income from operations				$	1,036,750

Required:
1. Prepare a flexible budget performance report for 2019. (Indicate the effect of each variance by selecting for favorable, unfavorable, and No variance.)

Answer 1

Flexible budget performance report
							flexible	actual	Varianace	fav/unfav
							budget	results
Sales			(3375000/15000)*18000				4050000	4,128,000	78,000	F
Variable costs
Direct materials			(825000/15000)*18000				990000	1,006,000	16,000	U
direct labor			(225000/15000)*18000				270000	278,000	8,000	U
machinery repairs			(60000/15000)*18000				72000	64,000	8,000	F
utilities			(45000/15000)*18000				54000	53500	500	F
packaging			(75000/15000)*18000				90000	87,250	2,750	F
shipping			(105000/15000)*18000				126000	118,000	8,000	F
total variable costs							1602000	1606750	4,750	U
contribution margin							2448000	2521250	73,250	F
Fixed costs									0
Depreciation - plant Equipment							330,000	330,000	0	N
Utilities							160000	157,500	2,500	F
plant management salaries							200,000	210,000	10,000	U
Sales salary							270,000	287,000	17,000	U
Advertising							129,000	136,000	7,000	U
Salaries							261,000	261,000	0	N
Entertainment expense							100,000	103,000	3,000	U
total fixed cost							1,450,000	1,484,500	34,500	U
income from operations							998,000	1,036,750	38,750	F