Question

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	$	945,000
Direct labor		240,000
Machinery repairs (variable cost)		60,000
Depreciation—Plant equipment (straight-line)		315,000
Utilities ($30,000 is variable)		195,000
Plant management salaries		220,000			1,975,000
Gross profit					1,025,000
Selling expenses
Packaging		90,000
Shipping		105,000
Sales salary (fixed annual amount)		235,000			430,000
General and administrative expenses
Advertising expense		150,000
Salaries		241,000
Entertainment expense		90,000			481,000
Income from operations				$	114,000

Problem 21-1A Part 4

4. An unfavorable change in business is remotely possible; in this case, production and sales volume for 2017 could fall to 12,000 units. How much income (or loss) from operations would occur if sales volume falls to this level? (Enter any loss with minus sign.)

PHOENIX COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2017 Sales (in units) 15,000 12,000 Contribution margin (per unit) Contribution margin Fixed costs Operating income (loss)

Answer 1

Statement Showing the Contribution per unit

Particulers                                                                                           Values                         Values

(A)    Selling Price per unit (3000000/15000)                                                                                                        200

(B)   Variable Cost

        Material Cost (945000/15000)                                                                                63

        Labour Cost (240000/15000)                                                                                        16

        Machinary repairs(60000/15000) 4

        Utilities (30000/15000)                                                                                                     2

        Packaging (90000/15000)                                                                                                6

        Shipping Cost (105000/15000)                                                                                        7

        Total Variable cost (B)    98

     Contribution (A-B)                                                                                                                                                 102

Statement Showing the income /loss from operations at defferent levels

             Pariculers                                                                                               Units 15000             units 12000

(A)   Contribution (contribution per unit*No of units)                                         1530000                 1224000

(B)   Less : Fixed Cost

         Depreciation                                                           315000                                  

         Utilities(195000-30000)                                           165000

   Plant Management Salaries 220000

   Sales Salaries    235000

Advertising Expenses 150000

          salaries    241000

   Entertainment Expenses 90000                    

         Total Fixed Cost(B)                                                                                      1416000    1416000     

Income /loss   (A-B)                                                                                                114000                    -192000