Question

Exercise 08-3 Preparing flexible budgets LO P1 Tempo Company's fixed budget (based on sales of 14,000 units) for the first quarter reveals the following. Fixed Budget $ 2,898,000 $350,000 588,000 364,000 150,000 1,452,000 1,446,000 Sales (14,000 units X $207 per unit) Cost of goods sold Direct materials Direct labor Production supplies Plant manager salary Gross profit Selling expenses Sales commissions Packaging Advertising Administrative expenses Administrative salaries Depreciation-office equip. Insurance Office rent Income from operations 98,000 224,000 100,000 422,000 200,000 170,000 140,000 150,000 660,000 364,000 $ (1) Compute the total variable cost per unit. (2) Compute the total fixed costs. (3) Compute the income from operations for sales volume of 12,000 units. (4) Compute the income from operations for sales volume of 16,000 units.

Answer 1

TEMPO COMPANY
Flexible Budgets
For the 1st Quarter
	Flexible Budgets		Flexible Budgets
	Variable amount per unit	Total Fixed cost	12,000 units	14,000 units	16,000 units
Sales	$207.00		$24,84,000.00	$28,98,000.00	$33,12,000.00
Variable Costs:
Direct materials	$25.00		$3,00,000.00	350000	$4,00,000.00
Direct labor	$42.00		$5,04,000.00	588000	$6,72,000.00
Production supplies	$26.00		$3,12,000.00	364000	$4,16,000.00
Sales commissions	$7.00		$84,000.00	98000	$1,12,000.00
Packaging	$16.00		$1,92,000.00	224000	$2,56,000.00
Total Variable costs	$116.00		$13,92,000.00	1624000	$18,56,000.00
Contribution margin	$91.00		$10,92,000.00	1274000	$14,56,000.00
Fixed Costs:
Plant manager salary		$1,50,000	$1,50,000	$1,50,000	$1,50,000
Advertising		$1,00,000	$1,00,000	$1,00,000	$1,00,000
Administrative salaries		$2,00,000	$2,00,000	$2,00,000	$2,00,000
Depreciation expnses-Office equip		$1,70,000	$1,70,000	$1,70,000	$1,70,000
Insurance		$1,40,000	$1,40,000	$1,40,000	$1,40,000
Office Rent		$1,50,000	$1,50,000	$1,50,000	$1,50,000
Total Fixed Costs		$9,10,000	$9,10,000	$9,10,000	$9,10,000
Income from operations			$1,82,000	$3,64,000	$5,46,000