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				$	3,150,000
Cost of goods sold
Direct materials	$	915,000
Direct labor		210,000
Machinery repairs (variable cost)		45,000
Depreciation—Plant equipment (straight-line)		330,000
Utilities ($60,000 is variable)		195,000
Plant management salaries		200,000			1,895,000
Gross profit					1,255,000
Selling expenses
Packaging		75,000
Shipping		105,000
Sales salary (fixed annual amount)		235,000			415,000
General and administrative expenses
Advertising expense		100,000
Salaries		241,000
Entertainment expense		85,000			426,000
Income from operations				$	414,000

Problem 21-1A Part 1&2

Required:
1&2. Prepare flexible budgets for the company at sales volumes of 14,000 and 16,000 units and classify all items listed in the fixed budget as variable or fixed.

Answer 1

PHOENIX COMPANY Flexible Budgets for the Year Ended December 31, 2017 Flexible Budget | Flexible Budget for: Variable I Total Fixed Units Sales Unit Sales Amount per writ Cost of 14,000 07 16,000 $210 $2,940,000 $3,360,000 Sales Variable costs Direct Materials Direct Labor Machinery repairs Utilities Packaging Shipping $ 61 $ 14 $ 3 $ 4 $ 854,000 $ 196,000 + 42,000 $ 976,000 $ 224,000 $ 48,000 $ 64,000 $ 89ooo $ 1124000 $ 5 $ 56,000 $ 70,000 $ 98,000 $94 & 116 $1,316,000 $1,504,000 $1,624,000 $1,856,000 Total variable costs Contribution margin "es:fixed costs Depreciation - Plant equipment Utilities Plant management Salaries sales salary Advertising Salaries Entertainment expense $330,000 $ 330,000 $330,000 $ 135,000 $135,000 $ 135,000 $ 200,000 $200,000 $200,000 $ 235,000 $ 235,000 $235,000 $ 100,000 $ 100,000 $100,000 $ 241,000 $ 241,000 $24,000 $ 85,000 & 85,ooo & 85,000 Total fixed costs Income from operations $1,326,000 $1,326,000 $1,326,000 $ 298,000 $530,000

Calculation: Sales & $3, 150,000 & 15,000 units = $210 Variable costs Direct materials = = 15,000 units # 915,000 $ 61 Direct labor = $210,ooo - 15,000 units = $ 14 Machinery repairs = $ 45,000 15,000 units Utilities = = $60,000 & 15,000 units $ 4 Packaging = = $ 75,000 & 15,000 units $5 $ 105,000 = Shipping = 15,000 units Fixed costs Utilities ($ 195,000 - $ 60,000 is variable) = $ 135,000