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Balmer Corporation's master budget for the year is presented below: Sales (50,000 units) $ 1,600,000 Cost of goods sold: $ 150,000 Direct materials 450,000 Direct
Balmer Corporation's master budget for the year is presented below:
Sales (50,000 units) | $ | 1,600,000 | ||||
Cost of goods sold: | $ | 150,000 | ||||
Direct materials | 450,000 | |||||
Direct labor | 240,000 | 840,000 | ||||
Overhead (Variable overhead applied at 40% of direct labor cost) | $ | 760,000 | ||||
Gross profit | ||||||
Selling expenses: | ||||||
Sales commissions (all variable) | $ | 160,000 | ||||
Rent (all fixed) | 40,000 | |||||
Insurance (all fixed) | 30,000 | |||||
General expenses: | ||||||
Salaries (all fixed) | 92,000 | |||||
Rent (all fixed) | 77,000 | |||||
Depreciation (all fixed) | 51,000 | 450,000 | ||||
Operating income | $ | 310,000 | ||||
During the period, the company manufactured and sold 42,000 units.
Required:
1. Prepare a flexible budget (FB) for the actual output level achieved during the period; state each item at nearest whole dollar. 2. What is the definition of a FB? For what managerial purpose is a FB useful? Be specific about the types of information (and variances) that management can generate, at the end of an accounting period, given a flexible budget and its master (static) budget.
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