Question

Exercise 8-2 Preparing flexible budgets LO P1

Tempo Company's fixed budget (based on sales of 10,000 units) for the first quarter of calendar year 2017 reveals the following. Fixed Budget Sales (10,000 units) $ 2,060,000 Cost of goods sold Direct materials $ 250,000 Direct labor 430,000 Production supplies 270,000 Plant manager salary 50,000 1,000,000 Gross profit 1,060,000 Selling expenses Sales commissions 90,000 Packaging 160,000 Advertising 100,000 350,000 Administrative expenses Administrative salaries 100,000 Depreciation—office equip. 70,000 Insurance 40,000 Office rent 50,000 260,000 Income from operations $ 450,000 Complete the following flexible budgets for sales volumes of 8,000, 10,000, and 12,000 units. (Round cost per unit to 2 decimal places.)

Answer 1

Ans:

TEMPO COMPANY
Flexible Budgets
For Quarter Ended March 31, 2017
	------Flexible Budget------		------Flexible Budget at ------
	Variable Amount per Unit	Total Fixed Cost	8,000 units	10,000 units	12,000 units
Sales	$ 206		$ 1,648,000	$ 2,060,000	$ 2,472,000
Variable costs:
Direct materials	25		$ 200,000	$ 250,000	$ 300,000
Direct labor	43		$ 344,000	$ 430,000	$ 516,000
Production supplies	27		$ 216,000	$ 270,000	$ 324,000
Sales commissions	9		$ 72,000	$ 90,000	$ 108,000
Packaging	16		$ 128,000	$ 160,000	$ 192,000
Total variable costs	120		960000	$ 1,200,000	1440000
Contribution margin	$ 86		$ 688,000	$ 860,000	$ 1,032,000
Fixed costs:
Plant manager salary		50,000	50,000	50,000	50,000
Advertising		100,000	100,000	100,000	100,000
Administrative salaries		100,000	100,000	100,000	100,000
Depreciation—office equip.		70,000	70,000	70,000	70,000
Insurance		40,000	40,000	40,000	40,000
Office rent		50,000	50,000	50,000	50,000
Total fixed costs		410,000	410,000	410,000	410,000
Income from operations			$ 278,000	$ 590,000	$ 622,000