Exercise 8-2 Preparation of flexible budgets LO P1 Tempo Company’s fixed budget

Question

Exercise 8-2 Preparation of flexible budgets LO P1

Tempo Company’s fixed budget (based on sales of 14,000 units) for the first quarter of calendar year 2015 reveals the following.

Fixed Budget Sales (14,000 units) $ 3,066,000 Cost of goods sold Direct materials $ 350,000 Direct labor 602,000 Production supplies 392,000 Plant manager salary 150,000 1,494,000 Gross profit 1,572,000 Selling expenses Sales commissions 112,000 Packaging 224,000 Advertising 100,000 436,000 Administrative expenses Administrative salaries 200,000 Depreciation—office equip. 170,000 Insurance 140,000 Office rent 150,000 660,000 Income from operations $ 476,000

Complete the following flexible budgets for sales volumes of 12,000, 14,000, and 16,000 units. (Round cost per unit to 2 decimal places.)

Explanation / Answer

Notes:

Selling price per unit = 3066000/14000 = $219

Direct materials = 350000/14000 = $25/unit

Direct labour = 602000/14000 = $43/unit

production supplies = 392000 / 14000 = $28/unit

Slaes commissions = 112000/14000 = $8 per unit

Packaging = 224000/14000 = $16/unit

Cost elements nature Cost per unit Flexible Budget Sales Volume 12000 14000 16000 Selling price per unit 219 2628000 3066000 3504000 Sales revenue Direct materials variable 25 -300000 -350000 -400000 Direct labour variable 43 -516000 -602000 -688000 production supplies variable 28 -336000 -392000 -448000 Plant managers salary Fixed 150000 -150000 -150000 -150000 Gross profit 1326000 1572000 1818000 Slaes commissions variable 8 -96000 -112000 -128000 Packaging variable 16 -192000 -224000 -256000 Advertisement Fixed 100000 -100000 -100000 -100000 Administrative expenses Fixed 200000 -200000 -200000 -200000 Depreciation Fixed 170000 -170000 -170000 -170000 Insurance Fixed 140000 -140000 -140000 -140000 Office equipment Fixed 150000 -150000 -150000 -150000 Net Profit 278000 476000 674000

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