Question

Required information The following information applies to the questions displayed below.) 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. $3,150,000 PHOENIX COMPANY Fixed Budget Report For Year Ended December 31, 2017 Sales Cost of goods sold Direct materials $930,000 Direct labor 225,000 Machinery repairs (variable cost) 45,000 Depreciation--Plant equipment (straight-line) 330,000 Utilities ($45,000 is variable) 180,000 Plant management salaries 190,000 Gross profit Selling expenses Packaging 90,000 Shipping 105,000 Sales salary (fixed annual amount) 235,000 General and administrative expenses Advertising expense 150,000 Salaries 241,000 Entertainment expense 75,000 Income from operations 1,900,000 1,250,000 430,000 466,000 354,000 $

Answer 1

Solution:

Phoenix company

Forecasted Contribution Margin Income Statement

For Year Ended December 31,2017

Sales ( in units)	15,000	18,000
Contribution margin (per unit)	$114.00	$114.00
Contribution margin	$1,710,000	$2,052,000
Fixed costs	$1,356,000	$1,356,000
Operating income	$354,000	$696,000	$342000 Operating income increase

Explanation:

Operating income increase for a 15,000 units to 18,000 units sales increase.

Possible sales	18,000 units
Contribution margin per unit	$114.00
Total contribution margin (18,000 units ×$114)	$2,052,000
Less: Fixed costs	($1,356,000)
Potential operating income	$696,000
But Budgeted income for 2017	$354,000
Increase	$342,000