1. Whidbey Co. fixed budget for the year is shown below Sales (50,000 units) Cos

Question

1. Whidbey Co. fixed budget for the year is shown below Sales (50,000 units) Cost of goods sold: S1,300,000 S150,000 Direct materials Direct labor Overhead (includes $2 per unit variable 450,000 240.0001 840,000 overhead) Gross proft $460,000 Selling expenses: 60,000 40,000 35,000 Sales commissions (all variable) Rent (all fixed) Insurance (all fixed) General and administrative expenses: Salaries (all fixed) Rent (all fixed) Depreciation (all fixed) 72,000 54,000 31,000 Net income from operations $168,000 Required: Prepare a flexible budget for Whidbey Co. that shows a detailed budget for its actual sales volume of 42,000 units. Use the contribution margin format.

Explanation / Answer

Assuming 50000units as 100% Capacity and for 42000units as (42000/50000)*100=84%

Using the COntribution Margin Format Flexi Budget of Whidbey.co as follows

Note : The Overheads are calculated as follows

VAriable overheads in $240000 is given $2 per unit then Variable overheads are ($2*50000)=$100000 hence fixed overheads are $240000-$100000=$140000

Flexi Budget of Vidbey.co Amount in $ Particulars Flexible Budget Calculation Capacity 50000 units(100%) 42000 units(84%) 42000/50000*100 Sales 1300000 1092000 1300000*84% Less: Variable Expenses Direct Materials 150000 126000 150000*84% Direct Labour 450000 378000 450000*84% Overhead(Note) 100000 84000 100000*84% Sales Commission 60000 50400 60000*40% Total Variable Expenses 760000 638400 Contribution 540000 453600 Less:Fixed Expenses Overhead(Note) 140000 140000 Rent 94000 94000 Insurance 35000 35000 Salaries 72000 72000 Depreciation 31000 31000 Total Fixed Expenses 372000 372000 Profit 168000 81600

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