Tohono Company’s 2019 master budget included the following fixed budget report. It is based on an expected production and sales volume of 20,000 units.

Required

1. Classify all items listed in the fixed budget as variable or fixed. Also determine their amounts per unit or their amounts for the year, as appropriate.

2. Prepare flexible budgets (see Exhibit 23.3) for the company at sales volumes of 18,000 and 24,000 units.

3. The company’s business conditions are improving. One possible result is a sales volume of 28,000 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 budgeted amount of $125,000 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 the year could fall to 14,000 units. How much income (or loss) from operations would occur if sales volume falls to this level?

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Fixed Budget Report For Year Ended December 31, 2019 $3,000,000 Sales .... Cost of goods sold Direct materials ... Direct labor.... Machinery repairs (variable cost) Depreciation-Machinery (straight-line) Utilities (25% is variable cost) Plant manager salaries .. Gross profit..... Selling expenses Packaging.. Shipping .. Sales salary (fixed annual amount) . General and administrative expenses $1,200,000 260,000 57,000 250,000 200,000 140,000 2,107,000 893,000 80,000 116,000 356,000 160,000 Advertising. 81,000 Salaries..... 241,000 90,000 Entertainment expense Income from operations.. 412,000 $ 125,000