Question

Phoenix Company’s 2017 master budget included the following fixed budget report. It is based on an expected production and sales volume of 18,000 units.

PHOENIX COMPANY Fixed Budget Report For Year Ended December 31, 2017
Sales				$	4,500,000
Cost of goods sold
Direct materials	$	1,170,000
Direct labor		180,000
Machinery repairs (variable cost)		90,000
Depreciation—Plant equipment (straight-line)		300,000
Utilities ($72,000 is variable)		222,000
Plant management salaries		215,000			2,177,000
Gross profit					2,323,000
Selling expenses
Packaging		108,000
Shipping		144,000
Sales salary (fixed annual amount)		270,000			522,000
General and administrative expenses
Advertising expense		133,000
Salaries		241,000
Entertainment expense		100,000			474,000
Income from operations				$	1,327,000

Phoenix Company’s actual income statement for 2017 follows.

PHOENIX COMPANY Statement of Income from Operations For Year Ended December 31, 2017
Sales (21,000 units)				$	5,313,000
Cost of goods sold
Direct materials	$	1,380,000
Direct labor		218,000
Machinery repairs (variable cost)		96,000
Depreciation—Plant equipment (straight-line)		300,000
Utilities (fixed cost is $147,500)		230,750
Plant management salaries		225,000			2,449,750
Gross profit					2,863,250
Selling expenses
Packaging		124,000
Shipping		160,000
Sales salary (annual)		286,000			570,000
General and administrative expenses
Advertising expense		141,000
Salaries		241,000
Entertainment expense		103,500			485,500
Income from operations				$	1,807,750
Required: 1. Prepare a flexible budget performance report for 2017 PHOENIX COMPANY Flexible Budget Performance Report For Year Ended December 31, 2017 Flexible Budget Actual Results Variances Fav./Unfav. Sales Variable costs Direct materials Direct labor Machinery repairs Utilities Packaging Shipping Total fixed costs 0 0 Contribution margin Fixed costs Depreciation-Plant equipment (straight-line) Utilities Plant management salaries Sales salary Advertising expense Salaries Entertainment expense Total fixed costs 0 Income from operations

Answer 1

Solution:

Phoenix Company
Flexible Budget Performance Report
For the year ended Dec 31, 2017
Particulars	Flexible Budget	Actual results	Variances	Fav. / Unfav.
Sales	$52,50,000.00	$53,13,000.00	$63,000.00	Favorable
Variable Costs:
Direct Materials	$13,65,000.00	$13,80,000.00	$15,000.00	Unfavorable
Direct Labor	$2,10,000.00	$2,18,000.00	$8,000.00	Unfavorable
Machinery Repairs	$1,05,000.00	$96,000.00	$9,000.00	Favorable
Utilities	$84,000.00	$83,250.00	$750.00	Favorable
Packaging	$1,26,000.00	$1,24,000.00	$2,000.00	Favorable
Shipping	$1,68,000.00	$1,60,000.00	$8,000.00	Favorable
Total Variable Costs:	$20,58,000.00	$20,61,250.00	$3,250.00	Unfavorable
Contribution	$31,92,000.00	$32,51,750.00	$59,750.00	Favorable
Fixed Costs:
Depreciation - Plant & Equipment	$3,00,000.00	$3,00,000.00	$0.00	Neither favorable nor unfavorable
Utilities	$1,50,000.00	$1,47,500.00	$2,500.00	Favorable
Plant mangement salaries	$2,15,000.00	$2,25,000.00	$10,000.00	Unfavorable
Sales Salary	$2,70,000.00	$2,86,000.00	$16,000.00	Unfavorable
Advertising Expense	$1,33,000.00	$1,41,000.00	$8,000.00	Unfavorable
Salaries	$2,41,000.00	$2,41,000.00	$0.00	Neither favorable nor unfavorable
Entertainment Expenses	$1,00,000.00	$1,03,500.00	$3,500.00	Unfavorable
Total Fixed Costs	$14,09,000.00	$14,44,000.00	$35,000.00	Unfavorable
Net Operating Income	$17,83,000.00	$18,07,750.00	$24,750.00	Favorable