Question

Brodrick Company expects to produce 20,200 units for the year ending December 31. A flexible budget for 20,200 units of production reflects sales of $545,400; variable costs of $60,600; and fixed costs of $143,000.

1)If the company instead expects to produce and sell 26,700 units for the year, calculate the expected level of income from operations.

	------Flexible Budget------ ------Flexible Budget at ------ Variable Amount per Unit Total Fixed Cost 20,200 units 26,700 units Contribution margin $0.00 $0 $0 $0 $0

2)Assume that actual sales for the year are $673,900 (26,700 units), actual variable costs for the year are $113,700, and actual fixed costs for the year are $137,000.

Prepare a flexible budget performance report for the year.

	BRODRICK COMPANY Flexible Budget Performance Report For Year Ended December 31 Flexible Budget Actual Results Variances Favorable/ Unfavorable Contribution margin 0 0 $0 $0

Answer 1

Ans. 1		Flexible Budget		Flexible Budget At units
		Variable amount	Total fixed	20,200	26,700
		per unit	cost
	Sales	$27		$545,400	$720,900
	Variable cost	$3		$60,600	$80,100
	Contribution margin	$24		$484,800	$640,800
	Fixed costs		$143,000	$143,000	$143,000
	Income from operations			$341,800	$497,800
	*Selling price per unit = Sales / Sales units
	$545,400 / 20,200
	$27	per unit
	Total sales   =   Selling price per unit * Flexible budget units
		Flexible Budget At units
		20,200	26,700
	Total sales ($27 * units)	$545,400	$720,900
	Variable cost per unit = Variable cost / Predicted production
	$60,600 / 20,200
	$3	per unit
		Flexible Budget At units
		20,200	26,700
	Variable cost ($3 * units)	$60,600	$80,100
	*Total fixed cost and variable cost per unit always remains constant on each level of activity or units.
Ans. 2	BRODRICK COMPANY
	Flexible Budget Performance Report
	For the Year Ended December 31
		Flexible Budget	Actual Results	Variances	Favorable / Unfavorable
	Sales	$720,900	$673,900	$47,000	Unfavorable
	Variable cost	$80,100	$113,700	$33,600	Unfavorable
	Contribution margin	$640,800	$560,200	$80,600	Unfavorable
	Fixed costs	$143,000	$137,000	$6,000	Favorable
	Income from operations	$497,800	$423,200	$74,600	Unfavorable
	Flexible budget variance   =   Actual results - Flexible budget
	*Increase in revenue or net operating income and decrease in expenses from flexible budget to actual results =   Favorable.
	*Decrease in revenue or net operating income and increase in expenses from flexible budget to actual results =   Unfavorable.