Question

Problem 23-2A Preparation and analysis of a flexible budget performance report LO P1, P2, A1

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				$	3,000,000
Cost of goods sold
Direct materials	$	750,000
Direct labor		225,000
Machinery repairs (variable cost)		60,000
Depreciation—Plant equipment (straight-line)		300,000
Utilities ($45,000 is variable)		205,000
Plant management salaries		215,000			1,755,000
Gross profit					1,245,000
Selling expenses
Packaging		75,000
Shipping		105,000
Sales salary (fixed annual amount)		260,000			440,000
General and administrative expenses
Advertising expense		134,000
Salaries		241,000
Entertainment expense		100,000			475,000
Income from operations				$	330,000

Phoenix Company’s actual income statement for 2017 follows.

PHOENIX COMPANY Statement of Income from Operations For Year Ended December 31, 2017
Sales (18,000 units)				$	3,678,000
Cost of goods sold
Direct materials	$	916,000
Direct labor		279,000
Machinery repairs (variable cost)		64,000
Depreciation—Plant equipment (straight-line)		300,000
Utilities (fixed cost is $157,000)		210,500
Plant management salaries		226,000			1,995,500
Gross profit					1,682,500
Selling expenses
Packaging		87,250
Shipping		118,500
Sales salary (annual)		278,000			483,750
General and administrative expenses
Advertising expense		141,000
Salaries		241,000
Entertainment expense		103,000			485,000
Income from operations				$	713,750

Required:
1. Prepare a flexible budget performance report for 2017.

Answer 1

Flexible budget performance report
							flexible	actual	Varianace	fav/unfav
							budget	results
Sales			(3000000/15000)*18000				3600000	3,678,000	78,000	F
Variable costs
Direct materials			(750000/15000)*18000				900000	916,000	16,000	U
direct labor			(225000/15000)*18000				270000	279,000	9,000	U
machinery repairs			(60000/15000)*18000				72000	64,000	8,000	F
utilities			(45000/15000)*18000				54000	53500	500	F
packaging			(75000/15000)*18000				90000	87,250	2,750	F
shipping			(105000/15000)*18000				126000	118,500	7,500	F
total variable costs							1512000	1518250	6,250	U
contribution margin							2088000	2159750	71,750	F
Fixed costs									0
Depreciation - plant Equipment							300,000	300,000	0	N
Utilities							160000	157,000	3,000	F
plant management salaries							215,000	226,000	11,000	U
Sales salary							260,000	278,000	18,000	U
Advertising							134,000	141,000	7,000	U
Salaries							241,000	241,000	0	N
Entertainment expense							100,000	103,000	3,000	U
total fixed cost							1,410,000	1,446,000	36,000	U
income from operations							678,000	713,750	35,750	F