Question

Exercise 6-4 Crane manufactures aluminum canoes. In planning for the coming year, CFO Alexis King is considering three different sales targets: 2,640 canoes, 3,010 canoes, and 3,600 canoes. Canoes sell for $970 each. The standard variable cost information for a canoe is as follows. $285 111 Direct materials Direct labor Variable overhead Utilities Indirect material Indirect labor Total 35 30 60 $521 Annual fixed overhead cost is expected to be: Maintenance $ 20,700 Depreciation 41,700 Insurance 28,000 Rent 31,810 Total $ 122,210 Prepare a flexible budget for the three sales levels under consideration.

Answer 1

Crane Manufactures
Flexible Budgets
	Unit	2,640	3,010	3,600
Sales Revenue (2,640 units * $970); (3,010 units * $970); (3,600 units * $970) (a)	$970	$2,560,800	$2,919,700	$3,492,000
Less: Variable Costs:
Direct Materials (2,640 * $285); (3,010 * $285); (3,600 * $285)	$285	$752,400	$857,850	$1,026,000
Direct Labor (2,640 * $111); (3,010 * $111); (3,600 * $111)	$111	$293,040	$334,110	$399,600
Utilities (2,640 * $35); (3,010 * $35); (3,600 * $35)	$35	$92,400	$105,350	$126,000
Indirect materials (2,640 * $30); (3,010 * $30); (3,600 * $30)	$30	$79,200	$90,300	$108,000
Indirect labor (2,640 * $60); (3,010 * $60); (3,600 * $60)	$60	$158,400	$180,600	$216,000
Total Fixed Costs (b)	$521	$1,375,440	$1,568,210	$1,875,600
Contribution Margin (c = a - b)	$449	$1,185,360	$1,351,490	$1,616,400
Less: Fixed Costs:
Maintenance		$20,700	$20,700	$20,700
Depreciation		$41,700	$41,700	$41,700
Insurance		$28,000	$28,000	$28,000
Rent		$31,810	$31,810	$31,810
Total Fixed Costs (d)		$122,210	$122,210	$122,210
Operating Income		$1,063,150	$1,229,280	$1,494,190