Exercise 8-2 Preparing flexible budgets LO P Tempo Company\'s fixed budget (base

Question

Exercise 8-2 Preparing flexible budgets LO P Tempo Company's fixed budget (based on sales of 14,000 units) for the first quarter of calendar year 2017 reveals the following. Fixed Budget Sales (14,000 units) Cost of goods sold 3,066, 000 Direct materials Direct labor Production supplies Plant manager salary $336,000 602,000 364,000 136,000 1,438,000 Gross profit Selling expenses 1,628,000 Sales commissions Packaging Advertising 126,000 210,000 100,000 436,000 Administrative expenses Administrative salaries Depreciation-office equip. Insurance office rent 186,000 156,000 126,000 136,000 604,000 588,000 Income from operations 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.) Flexible Budgets For Quarter Ended March 31, 2017 Flexible Budget Flexible Budget at- Variable Total Fixed Cost 16,000 12,000 units 14,000 unitsunits Unit Variable costs

Explanation / Answer

TEMPO COMPANY Flexible Budgets For Quarter Ended March 31, 2017 ITEMS Variable amount Total fixed 12000 14000 16000 Per unit cost Units Units Units Sales 219 2628000 3066000 3504000 Variable costs: Direct materials 24 288000 336000 384000 Direct labor 43 516000 602000 688000 Production supplies 26 312000 364000 416000 Sales commissions 9 108000 126000 144000 Packaging 15 180000 210000 240000 Total variable costs 117 1404000 1638000 1872000 Contribution margin (sales - total variable costs) 102 1224000 1428000 1632000 Fixed Costs: Plant manager salary 136000 136000 136000 136000 Advertising 100000 100000 100000 100000 Administrative salaries 186000 186000 186000 186000 Depreciation-office equipment 156000 156000 156000 156000 Insurance 126000 126000 126000 126000 Office rent 136000 136000 136000 136000 Total Fixed costs 840000 840000 840000 840000 Income from operations 384000 588000 792000 (Contribution margin - total fixed costs) *Variable amount per unit = Items / 14000 units for example, sales (3066000 / 14000)      = 219 Direct materials (336000 / 14000)   = 24 Variable amount per unit of each item is calculated by the same way. *Fixed costs are always fix so, there is no change occur in fixed costs. * Variable costs = sales volume * variable amount per unit.

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