Question

Hi, I am having troubles with finding "unit sales of 14,000 and 16,000 (flexible budget) for direct materials etc.

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 $ 975,000 Direct labor 240,000 Machinery repairs (variable cost) 60,000 Depreciation—Plant equipment (straight-line) 315,000 Utilities ($30,000 is variable) 210,000 Plant management salaries 210,000 2,010,000 Gross profit 1,140,000 Selling expenses Packaging 90,000 Shipping 105,000 Sales salary (fixed annual amount) 235,000 430,000 General and administrative expenses Advertising expense 125,000 Salaries 241,000 Entertainment expense 85,000 451,000 Income from operations $ 259,000 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 Budget
	For Year Ended December 31, 2017
	Flexible Budget		Flexible Budget for:
	Variable Amount per Unit	Total Fixed Cost	Units Sales of 14,000	Unit Sales of 16,000
Sales	210		2940000	3360000
Variable costs:
Direct materials	65		910000	1040000
Direct labor	16		224000	256000
Machinery repairs	4		56000	64000
Utilities	2		28000	32000
Packaging	6		84000	96000
Shipping	7		98000	112000
Total variable costs	100		1400000	1600000
Contribution margin	110		1540000	1760000
Fixed costs
Depreciation—Plant equipment (straight-line)		315000	315000	315000
Advertising expense		125000	125000	125000
Entertainment expense		85000	85000	85000
Plant management salaries		210000	210000	210000
Utilities		180000	180000	180000
Sales salary		235000	235000	235000
Salaries		241000	241000	241000
Total fixed costs		1391000	1391000	1391000
Income from operations			149000	369000
Workings:
Sales = 3150000/15000 = $210
Variable costs:
Direct materials=975000/15000 = $65
Direct labor=240000/15000 = $16
Machinery repairs=60000/15000= $4
Utilities=30000/15000 = $2
Packaging=90000/15000=$6
Shipping=105000/15000 = $7