Question

Exercise 08-3 Preparing flexible budgets LO P1 Tempo Company's fixed budget (based on sales of 12,000 units) for the first quarter reveals the following. Fixed Budget $ 2,448,000 $276,000 516,000 324,000 76,000 1,192,000 1,256,000 Sales (12,000 units X $204 per unit) Cost of goods sold Direct materials Direct labor Production supplies Plant manager salary Gross profit Selling expenses Sales commissions Packaging Advertising Administrative expenses Administrative salaries Depreciation-office equip. Insurance Office rent Income from operations 84,000 180,000 100,000 364,000 126,000 96,000 66,000 76,000 364,000 528,000 $ (1) Compute the total variable cost per unit. (2) Compute the total fixed costs. (3) Compute the income from operations for sales volume of 10,000 units. (4) Compute the income from operations for sales volume of 14,000 units.

Answer 1

	Variable Amount per Unit	Total Fixed Cost
Sales	204
Variable costs:
Direct materials	23		=276000/12000
Direct labor	43		=516000/12000
Production supplies	27		=324000/12000
Sales commissions	7		=84000/12000
Packaging	15		=180000/12000
Total variable costs	115
Contribution margin	89
Fixed costs:
Plant manager salary		76,000
Advertising		100,000
Administrative salaries		126,000
Depreciation—office equip.		96,000
Insurance		66,000
Office rent		76,000
Total fixed costs		540,000
1
Variable cost per unit	115
2
Total fixed costs	540000
3
Income from Operations at sales of 10,000 units	350000	=(10000*89)-540000
4
Income from Operations at sales of 14,000 units	706000	=(14000*89)-540000