Required information Problem 21-1A Preparation and analysis of a flexible budget

Question

Required information Problem 21-1A Preparation and analysis of a flexible budget LO P1 The following information applies to the questions displayed below. 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 Cost of goods sold $3,150,000 Direct materials Direct labor Machinery repairs (variable cost) Depreciation-Plant equipment (straight-1line) Utilities ($45,000 is variable) Plant management salaries $ 915,000 210,000 45,000 315,000 195,000 190,000 1,870,000 1,280,000 Gross profit Selling expenses Packaging Shipping Sales salary (fixed annual amount) 75,000 105,000 235,000 415,000 General and administrative expenses Advertising expense Salaries Entertainment expense 125,000 230,000 80,000 435,000 Income from operations $430,0e0 3. The company's business conditions are improving. One possible result is a sales volume of 18,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2017 budgeted amount of $430,000 if this level is reached without increasing capacity? PHOENIX COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2017 15,000 Sales (in units) Contribution margin (per unit) Contribution margin Fixed costs Operating income 18,000 $ 28.66S 28.66 430,000 430,000 4. An unfavorable change in business is remotely possible; in this case, production and sales volume for 2017 could fall to 12,000 units How much income (or loss) from operations would occur if sales volume falls to this level? (Enter any loss with minus sign.) PHOENIX COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2017 15,000 12,000 Sales (in units) Contribution margin (per unit) Contribution margin Fixed costs Operating income (loss)

Explanation / Answer

Bifurcation of costs into variable and fixed costs:

Contribution per unit as calculated in the above table=$117

Calculations:

Answer for question no.3:

Calculation:

Answer for question no.4:

Calculations:

Particulars Amount Sales 3150000 Number of units 15000 Selling price per unit 210 Variable costs Direct materials 61 Direct labour 14 Machinery repairs 3 Utilities 3 Packaing 5 shipping 7 Total variable cost 93 Contribution per units 117 Minus: Fixed costs Depreciation 315000 Utilities 150000 Plant management salaries 190000 Sales salary 235000 Advertising expense 125000 Salaries 230000 Entertainment expenses 80000 Total fixed costs 1325000

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