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				$	3,300,000
Cost of goods sold
Direct materials	$	945,000
Direct labor		210,000
Machinery repairs (variable cost)		60,000
Depreciation—Plant equipment (straight-line)		315,000
Utilities ($30,000 is variable)		210,000
Plant management salaries		190,000			1,930,000
Gross profit					1,370,000
Selling expenses
Packaging		75,000
Shipping		90,000
Sales salary (fixed annual amount)		235,000			400,000
General and administrative expenses
Advertising expense		125,000
Salaries		241,000
Entertainment expense		80,000			446,000
Income from operations				$	524,000

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

	PHOENIX COMPANY
	Fixed Budget Report
	For Year Ended December 31, 2017
	Flexible Budget		Flexible Budget for:
	Variable Amount per Unit	Total Fixed Cost	Units Sales of 14,000	Unit Sales of 16,000
Sales	220		3080000	3520000
Variable costs:
Direct materials	63		882000	1008000
Direct labor	14		196000	224000
Machinery repairs	4		56000	64000
Utilities	2		28000	32000
Packaging	5		70000	80000
Shipping	6		84000	96000
Total variable costs	94		1316000	1504000
Contribution margin	126		1764000	2016000
Fixed costs
Depreciation—Plant equipment (straight-line)		315000	315000	315000
Advertising expense		125000	125000	125000
Entertainment expense		80000	80000	80000
Plant management salaries		190000	190000	190000
Utilities		180000	180000	180000
Sales salary		235000	235000	235000
Salaries		241000	241000	241000
Total fixed costs		1366000	1366000	1366000
Income from operations			398000	650000