Question

Phoenix Company’s 2017 master budget included the following fixed budget report. It is based on an expected production and sales volume of 16,000 units.

$3,600,000 $ 880,000 160,000 80,000 315,000 214,000 200,000 Fixed Budget Report For Year Ended December 31, 2017 Sales Cost of goods sold Direct materials Direct labor Machinery repairs (variable cost) Depreciation-Plant equipment (straight-line) Utilities ($64,000 is variable) Plant management salaries Gross profit Selling expenses Packaging Shipping Sales salary (fixed annual amount) General and administrative expenses Advertising expense Salaries Entertainment expense Income from operations 1,849,000 1,751,000 96,000 128,000 260,000 484,000 132,000 251,000 100,000 483,000 784,000 $ Phoenix Company's actual income statement for 2017 follows. $4,353,000 PHOENIX COMPANY Statement of Income from Operations For Year Ended December 31, 2017 Sales (19,000 units) Cost of goods sold Direct materials $1,062,000 Direct labor 198,000 Machinery repairs (variable cost) 86,000 Depreciation-Plant equipment (straight-line) 315,000 Utilities (fixed cost is $147,500) 222,750 Plant management salaries 210,000 Gross profit Selling expenses Packaging 111,250 Shipping 144,500 Sales salary (annual) 276,000 General and administrative expenses Advertising expense 141,000 Salaries 251,000 Entertainment expense 103,500 Income from operations 2,093,750 2,259,250 531,750 495,500 $1,232,000

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

Answer 1

Flexible budget performance report
For the Year ende 31st December 2017
	Flexible Budget	Actual Result	Variance	Fav. / Unfav.
Sales (19000 units)	4275000	4353000	78,000.0	Favorable
Variable Costs
Direct Materials	10,45,000.0	10,62,000.0	17,000.0	Unfavorable
Direct Labor	1,90,000.0	1,98,000.0	8,000.0	Unfavorable
Machinery Repairs	95,000.0	86,000.0	9,000.0	Favorable
Utilities	76,000.0	75,250.0	750.0	Favorable
Packaging	1,14,000.0	1,11,250.0	2,750.0	Favorable
Shipping	1,52,000.0	1,44,500.0	7,500.0	Favorable
Total Variable Cost	16,72,000.0	16,77,000.0	5,000.0	Unfavorable
Contribution Margin	26,03,000.0	26,76,000.0	73,000.0	Favorable
Fixed Costs
Depreciation	3,15,000.0	3,15,000.0	-	-
Utilities	1,50,000.0	1,47,500.0	2,500.0	Favorable
Plant Management Salaries	2,00,000.0	2,10,000.0	10,000.0	Unfavorable
Sales Salary	2,60,000.0	2,76,000.0	16,000.0	Unfavorable
Advertising Expenses	1,32,000.0	1,41,000.0	9,000.0	Unfavorable
Salaries	2,51,000.0	2,51,000.0	-	-
Entertainment Expenses	1,00,000.0	1,03,500.0	3,500.0	Unfavorable
Total Fixed Cost	14,08,000.0	14,44,000.0	36,000.0	Unfavorable
Income From operations	11,95,000.0	12,32,000.0	37,000.0	Favorable

Workings:

	Fixed Budget	Unit Cost/Price (/16000)	Flexible Budget
Sales	36,00,000.0	225	42,75,000.0
	(16000 units)		(Unit Cost *19000)
Variable Costs
Direct Materials	8,80,000.0	55.00	10,45,000.0
Direct Labor	1,60,000.0	10.00	1,90,000.0
Machinery Repairs	80,000.0	5.00	95,000.0
Utilities	64,000.0	4.00	76,000.0
Packaging	96,000.0	6.00	1,14,000.0
Shipping	1,28,000.0	8.00	1,52,000.0
	14,08,000.0		16,72,000.0

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