Question

[The following information applies to the questions displayed below.]

Phoenix Company’s 2015 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, 2015

Sales				$	3,000,000
Cost of goods sold
Direct materials	$	915,000
Direct labor		225,000
Machinery repairs (variable cost)		60,000
Depreciation—plant equipment (straight-line)		315,000
Utilities ($45,000 is variable)		180,000
Plant management salaries		220,000			1,915,000
Gross profit					1,085,000
Selling expenses
Packaging		75,000
Shipping		105,000
Sales salary (fixed annual amount)		235,000			415,000
General and administrative expenses
Advertising expense		100,000
Salaries		230,000
Entertainment expense		85,000			415,000
Income from operations				$	255,000

[The following information applies to the questions displayed below.) Phoenix Company's 2015 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, 2015 S 3,000,000 Sales Cost of goods sold Direct materials 915,000 225,000 60,000 315,000 180,000 220,000 Direct labor Machinery repairs (variable cost) Depreciation-plant equipment (straight-line) Utilities ($45,000 is variable) Plant management salaries 1,915,000 Gross profit Selling expenses Раcкaging Shipping Sales salary (fixed annual amount) 1,085,000 75,000 105,000 235,000 415,000 General and administrative expenses Advertising expense 100,000 230,000 85,000 Salaries Entertainment expense 415,000 S 255,000 Income from operations

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.

3.

The company’s business conditions are improving. One possible result is a sales volume of approximately 18,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2015 budgeted amount of $255,000 if this level is reached without increasing capacity?

4.	An unfavorable change in business is remotely possible; in this case, production and sales volume for 2015 could fall to 12,000 units. How much income (or loss) from operations would occur if sales volume falls to this level? (Enter any loss with minus sign.)

PLease organize exactly as seen, I get confused very easily, thank you so much!

Answer 1

Phoenix Company Requirement 1&2 Flexible Budgets For Year ended December 31, 2015 Flexible Budget Flexible Budget For Variable cost per unit Total Fixed Cost Unit Sales 14000 Unit Sales 16000 Sales 200 2800000 3200000 Variable Costs: Direct Materials 854000 976000 Direct Labor 210000 240000 Machinery Repairs 56000 64000 Utilities 42000 48000 Packaging 70000 80000 Shipping 98000 112000 105 1330000 1470000 1520000 1680000 Total Variable costs Contribution Margin Fixed Costs : Depreciation - Plant Equipment Utilities Plant Management salaries Sales Salary Advertising Salaries Entertainment expense 315000 135000 220000 235000 100000 230000 85000 315000 135000 220000 235000 100000 230000 85000 315000 135000 220000 235000 100000 230000 85000 1320000 Total Fixed Costs Income from Operations 1320000 150000 1320000 360000

Requirement 3 Forecasted Contribution Margin Income Statement For Year ended December 31, 2015 Sales (in units) 15000 Contribution Margin per unit 105 Contribution Margin 1575000 Fixed Costs -1320000 Operating Income 255000 18000 105 1890000 -1320000 570000 315000 Increase Requirement 4 Forecasted Contribution Margin Income Statement For Year ended December 31, 2015 Sales (in units) 15000 Contribution Margin per unit 105 Contribution Margin 1575000 Fixed Costs -1320000 Operating Income 255000 12000 105 1260000 -1320000 -60000