A chair manufacturer has established the following flexible budget for the month

Question

A chair manufacturer has established the following flexible budget for the month:

Units Produced and Sold
                                                                                   1,000            1,500           2,000
Sales                                                                           $10,000        $15,000          $20,000
Variable Costs                                                                (5,000)         (7,500)        (10,000)
Fixed Costs                                                                    (2,000)         (2,000)          (2,000)
Profit                                                                             $3,000          $5,500           $8,000

A.) What is the sales price per chair?

B.) What is the expected profit if 1,600 chairs are made?

C.) Describe a flexible budget and the advantages of a flexible budget over a static budget. How might a flexible budget be used as a tool to influence management's behavior? Provide an example in your answer.

Explanation / Answer

A.) What is the sales price per chair? Sale price per chair = sales÷ Units sold = 10,000 ÷ 1000 = $10 per unit B.) What is the expected profit if 1,600 chairs are made? Sales Price (1600 x 10) $16000 Variable cost (1600 x 5) ($8,000) Fixed cost ($2000) Profit $6,000 C.) Describe a flexible budget and the advantages of a flexible budget over a static budget. How might a flexible budget be used as a tool to influence management's behavior? Provide an example in your answer. This may be taken from the books.

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