Question

3. Perkins Company provides the following data developed for its master budget Sales Costs: priCC $11.00 per unit Direct labor Variable overhead... Factory depreciation 3.00 per unit 4.25 per unit $0.50 per unit ation.$12,000 per month $11,000 per month Selling expensc0.25 per unit Administrative cost $9,000 per month Required: Prepare flexible budgets for sales of 20,000, 22,000 and 24,000 units. Usea contribution margin format.

Answer 1

Answer

* All working forms part of the answer

* Few things to be kept in mind while Preparing Flexible Budget:
--#1: Variable Cost changes with the change in level. Hence units are multiplied by budgeted variable cost per unit.
--#2: Fixed Cost stays the same irrespective of the amount of unit sold.

* Requirement, as asked:

Working	Contribution margin Income Statement
A	Units sold	20,000	22,000	24,000
B = A x $ 11	Sales Revenue	$             220,000	$             242,000	$          264,000
	Variable Costs:
C = A x $ 3	Direct Materials	$               60,000	$               66,000	$             72,000
D = A x $4.25	Direct Labor	$               85,000	$               93,500	$          102,000
E = A x $ 0.50	Variable Overhead	$               10,000	$               11,000	$             12,000
F = A x $ 0.25	Selling Expenses	$                  5,000	$                 5,500	$               6,000
G = C+D+E+F	Total Variable Cost	$             160,000	$             176,000	$          192,000
H = A - G	Contribution margin	$               60,000	$               66,000	$             72,000
	Fixed Costs:
I	Factory Depreciation	$               12,000	$               12,000	$             12,000
J	Supervision	$               11,000	$               11,000	$             11,000
K	Administration Cost	$                  9,000	$                 9,000	$               9,000
L = I+J+K	Total Fixed Cost	$               32,000	$               32,000	$             32,000
M = H - L	Net [Operating] Income	$               28,000	$               34,000	$             40,000