Question

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				$	3,000,000
Cost of goods sold
Direct materials	$	945,000
Direct labor		240,000
Machinery repairs (variable cost)		60,000
Depreciation—Plant equipment (straight-line)		315,000
Utilities ($30,000 is variable)		195,000
Plant management salaries		220,000			1,975,000
Gross profit					1,025,000
Selling expenses
Packaging		90,000
Shipping		105,000
Sales salary (fixed annual amount)		235,000			430,000
General and administrative expenses
Advertising expense		150,000
Salaries		241,000
Entertainment expense		90,000			481,000
Income from operations				$	114,000

Problem 21-1A Part 1&2

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 Fixed Budget Report For Year Ended December 31, 2017 : Flexible Budget Flexible Budget for Particulars Variable cost Unit sales of Unit sales Fixed Cost of 16,000 14,000 per unit Sales 200.00 28,00,000 32,00,000 Variable cost Direct materials 63.00 8,82,000 10,08,000 Direct labor 2,56,000 16.00 2,24,000 Machinery repairs 4.00 56,000 64,000 Utilities 2.00 32,000 28,000 Packaging 6.00 84,000 96,000 Shipping 7.00 98,000 1,12,000 Total Variable costs 13,72,000 98.00 15,68,000 Contribution margin 16,32,000 102.00 14,28,000 Fixed costs: Depeciation Plant equipment 3,15,000 3,15,000 3,15,000 Utilities 1,65,000 1,65,000 1,65,000 Plant management salaries 2,20,000 2,20,000 2,20,000 Sales salary 2,35,000 2,35,000 2,35,000 Advertising 1,50,000 1,50,000 1,50,000 Salaries 2,41,000 2,41,000 2,41,000 Enterainement expenses 90,000 90,000 90,000 Total Fixed expenses 14,16,000 14,16,000 14,16,000 Income from Operations 12,000 2,16,000