Question

Exercise 08-3 Preparing flexible budgets LO P1 Tempo Company's fixed budget (based on sales of 16,000 units) for the first quarter reveals the following Fixed Budget Sales (16,000 units x $204 per unit) Cost of goods sold Direct materials $3,264,000 $384,000 704,000 448,000 184,000 Direct labor Production supplies Plant manager salary Gross profit Selling expenses Sales commissions Packaging Advertising Administrative expenses Administrative salaries Depreciation-office equip. 1,720,000 1,544,000 128,000 256,000 100,000 484,000 234,000 204,000 174,000 184,000 Insurance Office rent 796,000 $ 264,000 Income from operations

Answer 1

a)

Calculation of Variable Costs per Unit:

Direct Materials	$               24
Direct Labor	44
Production Supplies	28
Sales Commission	8
Packaging	16
Gross Contribution Margin	84
Variable Costs per Unit	$             120

Note:

Each Value has been calculated by using the information given in the table. For Example, Direct Material Cost per unit has been calculated by dividing the Total Value of Direct Materials by the units produced, that is, $384,000/16,000 units = $24 per unit.

b)

Calculation of Total Fixed Costs:

Plant Manager Salary	$          184,000
Advertising	100,000
Administrative Salaries	234,000
Depreciation-Office Equip.	204,000
Insurance	174,000
Office Rent	184,000
Total Fixed Costs	$       1,080,000

C) and D)

Tempo Company
Flexible Budget
For the Quarter ended 31st March 20XX
	Variable Amount per Unit ($)	Total Fixed Cost ($)	Income from 14,000 units ($)	Income from 18,000 units ($)
Sales	204		2,856,000	3,672,000
Variable Costs:
Direct Materials	24		336,000	432,000
Direct Labor	44		616,000	792,000
Production Supplies	28		392,000	504,000
Sales Commission	8		112,000	144,000
Packaging	16		224,000	288,000
Gross Contribution Margin *	84		1,176,000	1,512,000
Fixed Costs:
Plant Manager Salary		184,000	184,000	184,000
Advertising		100,000	100,000	100,000
Administrative Salaries		234,000	234,000	234,000
Depreciation-Office Equip.		204,000	204,000	204,000
Insurance		174,000	174,000	174,000
Office Rent		184,000	184,000	184,000
Net Income from Operations**			96,000	432,000

*Gross Contribution Margin = Sales - Variable Costs

**Net Income from Operations = Gross Contribution Margin - Total Fixed Costs