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Byephone Company is planning to launch a new phone to the market. Below is the expected production and operating costs on the new phone: Selling

Byephone Company is planning to launch a new phone to the market. Below is the expected production and operating costs on the new phone:

Selling Price

$350 per unit

Direct materials

$120 per unit

Direct labor

$180 per unit

Electric power

$3.20 per unit

Supervisor salaries

$25,000 per year

Advertising and Selling Expenses

$120,000 per year

Salesperson salaries (5 persons)

$360,000 per year

The annual expected sales of the new toy is 10,000 units.

The management of the company is deciding whether Static or Flexible budget should be used for evaluating the operating performance of this new phone. If flexible budget to be adopted, the following expenses will be calculated based on the expected annual sales volume:

Advertising and Selling Expenses

$10 per unit

Salesperson salaries (5 persons):

  • Basic Salary per person

$15,000 per year

  • Total Commission

$20 per unit

Required:

(a)

Prepare a Static and Flexible budget of Statement of Operation for Byephone Company.

(24 marks)

(b)

Which type of budgeting method should be adopted for evaluating the operating performance of the new phone? Explain.

(10 marks)

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