Question

Tempo Company's fixed budget (based on sales of 16.000 units) for the first quarter of calendar year 2017 reveals the following. Fixed Budget $3,248,000 Sales (16,000 units) Cost of goods sold Direct materials Direct labor Production supplies Plant manager salary Gross profit Selling expenses Sales commissions Packaging Advertising Administrative expenses Administrative salaries Depreciation-office equip. Insurance Office rent $368,000 672,000 416,000 168,000 1,624,000 1,624,000 128,000 256,000 100,000 484,000 218,000 188,000 158,000 168,000 732,000 Income from operations 408,000 Compiete the following flexible budgets for sales volumes of 14.000. 16.000, and 18.000 units. (Round cost per unit to 2 decimel pleces.) TEMPO COMPANY Flexible Budgets

Answer 1

Ans. 1	TEMPO COMPANY
	Flexible Budgets
	For Quarter Ended March 31, 2017
		Flexible Budget		Flexible Budget At units
		Variable amount per unit	Total fixed cost	14000	16000	18000
	Sales	$203		$2,842,000	$3,248,000	$3,654,000
	Less: Variable costs:
	Direct materials	$23.00		$322,000	$368,000	$414,000
	Direct labor	$42.00		$588,000	$672,000	$756,000
	Production supplies	$26.00		$364,000	$416,000	$468,000
	Sales commissions	$8.00		$112,000	$128,000	$144,000
	Packaging	$16.00		$224,000	$256,000	$288,000
	Total variable cost	$115		$1,610,000	$1,840,000	$2,070,000
	Contribution margin	$88		$1,232,000	$1,408,000	$1,584,000
	Less: Fixed costs:
	Plant manager salary		$168,000	$168,000	$168,000	$168,000
	Advertising		$100,000	$100,000	$100,000	$100,000
	Administrative salaries		$218,000	$218,000	$218,000	$218,000
	Depreciation - Office equipment		$188,000	$188,000	$188,000	$188,000
	Insurance		$158,000	$158,000	$158,000	$158,000
	Office rent		$168,000	$168,000	$168,000	$168,000
	Total fixed cost		$1,000,000	$1,000,000	$1,000,000	$1,000,000
	Net Income			$232,000	$408,000	$584,000
	*Total fixed cost always remains constant on each level of activity or units.
	Working Notes:
	First of all, we need to calculate selling price per unit & variable cost per unit for the preparation of Flexible budget.
	*Selling price per unit = Sales / Sales units
	$3,248,000 / 16,000
	$203
	Variable cost per unit = Particular variable cost / Units sold
	Direct materials	$368,000 / 16,000	$23.00	per unit
	Direct labor	$672,000 / 16,000	$42.00	per unit
	Production supplies	$416,000 / 16,000	$26.00	per unit
	Sales commissions	$128,000 / 16,000	$8.00	per unit
	Packaging	$256,000 / 16,000	$16.00	per unit