Exercise 8-1A Preparing master and flexible budgets Cherokee Manufacturing Compa

Question

Exercise 8-1A Preparing master and flexible budgets Cherokee Manufacturing Company established the following standard price and cost data: Sales price Variable manufacturing cost Fixed manufacturing cost Fixed selling and administrative cost $1200 per unit $7.20 per unit $3,600 total $1,200 total herokee planned to produce and sell 2,000 units. Actual production and sales amounted to 2.200 units. Required Prepare the pro forma income statement in contribution format that would appear in a mas ter budget. b. Prepare the pro forma income statement in contribution format that would appear in a flexi- ble budget.

Explanation / Answer

(a) Preparation of the pro forma income statement in contribution format that would appear in a master budget.We have,

CHEROKEE MANUFACTURING COMPANY

Pro foma income statement in contribution format

Master Budget

2,000 Units

(b) Preparation of the pro forma income statement in contribution format that would appear in a flexible budget.We have,

CHEROKEE MANUFACTURING COMPANY

Pro foma income statement in contribution format

Master Budget

2,200 Units

Items

Master Budget

2,000 Units

Sales 2,000 x 12.00 $ 24,000 Less: Variable Manufacturing Cost 2,000 x 7.20 14,400 Contribution Margin $ 9,600 Less: Fixed Manufacturing cost 3,600 Less: Fixed selling and administrative cost 1,200 Net Income $ 4,800

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