Question

Phoenix Company’s 2017 master budget included the following fixed budget report. It is based on an expected production and sales volume of 18,000 units.

PHOENIX COMPANY Fixed Budget Report For Year Ended December 31, 2017
Sales				$	4,500,000
Cost of goods sold
Direct materials	$	1,170,000
Direct labor		360,000
Machinery repairs (variable cost)		36,000
Depreciation—Plant equipment (straight-line)		315,000
Utilities ($18,000 is variable)		168,000
Plant management salaries		230,000			2,279,000
Gross profit					2,221,000
Selling expenses
Packaging		54,000
Shipping		90,000
Sales salary (fixed annual amount)		260,000			404,000
General and administrative expenses
Advertising expense		129,000
Salaries		241,000
Entertainment expense		100,000			470,000
Income from operations				$	1,347,000

Phoenix Company’s actual income statement for 2017 follows.

PHOENIX COMPANY Statement of Income from Operations For Year Ended December 31, 2017
Sales (21,000 units)				$	5,298,000
Cost of goods sold
Direct materials	$	1,380,000
Direct labor		429,000
Machinery repairs (variable cost)		33,000
Depreciation—Plant equipment (straight-line)		315,000
Utilities (fixed cost is $147,500)		168,000
Plant management salaries		240,000			2,565,000
Gross profit					2,733,000
Selling expenses
Packaging		60,250
Shipping		97,000
Sales salary (annual)		277,000			434,250
General and administrative expenses
Advertising expense		138,000
Salaries		241,000
Entertainment expense		103,000			482,000
Income from operations				$	1,816,750

Required:
1. Prepare a flexible budget performance report for 2017.

Answer 1

Please hit like button if this helped you
Part 1 and 2			Working		Actual	Variance		Flexible	Variance		Budget
			Variable amount per unit	Total Fixed Cost	Unit sale of 21,000			Unit sale of 21,000			Unit sale of 18,000
Sales			$                                       250.00		$                    5,298,000	$                    48,000	F	$                              5,250,000	$                        750,000	F	$                    4,500,000
Variable Cost:
Direct Material			$                                         65.00		$                    1,380,000	$                    15,000	U	$                              1,365,000	$                        195,000	U	$                    1,170,000
Direct Labor			$                                         20.00		$                        429,000	$                      9,000	U	$                                 420,000	$                          60,000	U	$                        360,000
Machinery Repair			$                                            2.00		$                          33,000	$                      9,000	F	$                                    42,000	$                            6,000	U	$                          36,000
Utilities	$18,000/18,000		$                                            1.00		$                          20,500	$                          500	F	$                                    21,000	$                            3,000	U	$                          18,000
Packaging			$                                            3.00		$                          60,250	$                      2,750	F	$                                    63,000	$                            9,000	U	$                          54,000
Shipping			$                                            5.00		$                          97,000	$                      8,000	F	$                                 105,000	$                          15,000	U	$                          90,000
Total Variable Expense			$                                         96.00		$                    2,019,750	$                      3,750	U	$                              2,016,000	$                        288,000	U	$                    1,728,000
Contribution Margin			$                                       154.00		$                    3,278,250	$                    44,250	F	$                              3,234,000	$                        462,000	F	$                    2,772,000
Fixed Costs:
Depreciation-Plant				$                 315,000	$                        315,000	$                             -	None	$                                 315,000	$                                   -	None	$                        315,000
Plant Management salaries				$                 230,000	$                        240,000	$                    10,000	U	$                                 230,000	$                                   -	None	$                        230,000
Utilities	$168,000-$18,000			$                 150,000	$                        147,500	$                      2,500	F	$                                 150,000	$                                   -	None	$                        150,000
Sales salaries				$                 260,000	$                        277,000	$                    17,000	U	$                                 260,000	$                                   -	None	$                        260,000
Advertising Expense				$                 129,000	$                        138,000	$                      9,000	U	$                                 129,000	$                                   -	None	$                        129,000
Salaries				$                 241,000	$                        241,000	$                             -	None	$                                 241,000	$                                   -	None	$                        241,000
Entertainment Expense				$                 100,000	$                        103,000	$                      3,000	U	$                                 100,000	$                                   -	None	$                        100,000
Total Fixed Cost				$              1,425,000	$                    1,461,500	$                    36,500	U	$                              1,425,000	$                                   -	None	$                    1,425,000
Net Income					$                    1,816,750	$                      7,750	F	$                              1,809,000	$                        462,000	F	$                    1,347,000