Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company sells its product to retailers throughout the northeastern quadrant of the United States. It is in the process of creating a master budget for 2022 and reports a balance sheet at December 31, 2021 as follows:

Endless Mountain Company
Balance Sheet
December 31, 2021
Assets
Current assets:
Cash	$ 46,200
Accounts receivable (net)	260,000
Raw materials inventory (4,500 yards)	11,250
Finished goods inventory (1,500 units)	32,250
Total current assets		$ 349,700
Plant and equipment:
Buildings and equipment	900,000
Accumulated depreciation	(292,000)
Plant and equipment, net		608,000
Total assets		$ 957,700
Liabilities and Stockholders Equity
Current liabilities:
Accounts payable		$ 158,000
Stockholders equity:
Common stock	$ 419,800
Retained earnings	379,900
Total stockholders equity		799,700
Total liabilities and stockholders equity		$ 957,700

The companys chief financial officer (CFO), in consultation with various managers across the organization has developed the following set of assumptions to help create the 2022 budget:

1. The budgeted unit sales are 12,000 units, 37,000 units, 15,000 units, and 25,000 units for quarters 1-4, respectively. Notice that the company experiences peak sales in the second and fourth quarters. The budgeted selling price for the year is $32 per unit. The budgeted unit sales for the first quarter of 2023 is 13,000 units.
2. All sales are on credit. Uncollectible accounts are negligible and can be ignored. Seventy-five percent of all credit sales are collected in the quarter of the sale and 25% are collected in the subsequent quarter.
3. Each quarters ending finished goods inventory should equal 15% of the next quarters unit sales.
4. Each unit of finished goods requires 3.5 yards of raw material that costs $3.00 per yard. Each quarters ending raw materials inventory should equal 10% of the next quarters production needs. The estimated ending raw materials inventory on December 31, 2022 is 5,000 yards.
5. Seventy percent of each quarters purchases are paid for in the quarter of purchase. The remaining 30% of each quarters purchases are paid in the following quarter.
6. Direct laborers are paid $18 an hour and each unit of finished goods requires 0.25 direct labor-hours to complete. All direct labor costs are paid in the quarter incurred.
7. The budgeted variable manufacturing overhead per direct labor-hour is $3.00. The quarterly fixed manufacturing overhead is $150,000 including $20,000 of depreciation on equipment. The number of direct labor-hours is used as the allocation base for the budgeted plantwide overhead rate. All overhead costs (excluding depreciation) are paid in the quarter incurred.
8. The budgeted variable selling and administrative expense is $1.25 per unit sold. The fixed selling and administrative expenses per quarter include advertising ($25,000), executive salaries ($64,000), insurance ($12,000), property tax ($8,000), and depreciation expense ($8,000). All selling and administrative expenses (excluding depreciation) are paid in the quarter incurred.
9. The company plans to maintain a minimum cash balance at the end of each quarter of $30,000. Assume that any borrowings take place on the first day of the quarter. To the extent possible, the company will repay principal and interest on any borrowings on the last day of the fourth quarter. The companys lender imposes a simple interest rate of 3% per quarter on any borrowings.
10. Dividends of $15,000 will be declared and paid in each quarter.
11. The company uses a last-in, first-out (LIFO) inventory flow assumption. This means that the most recently purchased raw materials are the first-out to production and the most recently completed finished goods are the first-out to customers.

Integration Exercise 14 Cost-Volume-Profit Relationships, Variable Costing [LO 1-4, LO 6-1, LO 6-5, LO 6-7, LO 6-8, LO 7-1, LO 7-2, LO 7-3]

Required:

1. Calculate the following budgeted figures for 2022:

a. The total fixed cost.

b. The variable cost per unit sold.

c. The contribution margin per unit sold.

d. The break-even point in unit sales and dollar sales.

e. The margin of safety.

f. The degree of operating leverage

2. Prepare a budgeted variable costing income statement for 2022. Stop your computations at net operating income.

The Little Theatre is a nonprofit organization devoted to staging plays for children. The theater has a very small full-time professional administrative staff. Through a special arrangement with the actors union, actors and directors rehearse without pay and are paid only for actual performances.

The Little Theatre had tentatively planned to put on six different productions with a total of 108 performances. For example, one of the productions was Peter Rabbit, which had a six-week run with three performances on each weekend. The costs from the current years planning budget appear below.

The Little Theatre Costs from the Planning Budget For the Year Ended December 31
Budgeted number of productions	6
Budgeted number of performances	108
Actors and directors wages	$ 239,760
Stagehands wages	56,160
Ticket booth personnel and ushers wages	39,960
Scenery, costumes, and props	109,320
Theater hall rent	77,760
Printed programs	50,760
Publicity	13,320
Administrative expenses	49,680
Total	$ 636,720

Some of the costs vary with the number of productions, some with the number of performances, and some are fixed and depend on neither the number of productions nor the number of performances. The costs of scenery, costumes, props, and publicity vary with the number of productions. It doesnt make any difference how many times Peter Rabbit is performed, the cost of the scenery is the same. Likewise, the cost of publicizing a play with posters and radio commercials is the same whether there are 10, 20, or 30 performances of the play. On the other hand, the wages of the actors, directors, stagehands, ticket booth personnel, and ushers vary with the number of performances. The greater the number of performances, the higher the wage costs will be. Similarly, the costs of renting the hall and printing the programs will vary with the number of performances. Administrative expenses are more difficult to analyze, but the best estimate is that approximately 75% of the budgeted costs are fixed, 15% depend on the number of productions staged, and the remaining 10% depend on the number of performances.

After the beginning of the year, the board of directors of the theater authorized expanding the theaters program to seven productions and a total of 168 performances. Not surprisingly, actual costs were considerably higher than the costs from the planning budget. (Grants from donors and ticket sales were also correspondingly higher, but are not shown here.) Data concerning the actual costs appear below:

The Little Theatre Actual Costs For the Year Ended December 31
Actual number of productions	7
Actual number of performances	168
Actors and directors wages	$ 402,500
Stagehands wages	86,000
Ticket booth personnel and ushers wages	64,400
Scenery, costumes, and props	131,700
Theater hall rent	112,100
Printed programs	72,400
Publicity	17,300
Administrative expenses	54,700
Total	$ 941,100

Required:

1. Prepare a flexible budget for The Little Theatre based on the actual activity of the year.

2. Prepare a report for the year that shows the spending variances for all expense items.