Phoenix Company's 2015 master budget included the following fixed budget report. It is based on an expected production and sales volume of 15,000 units.

PHOENIX COMPANY

Fixed Budget Report

For Year Ended December 31, 2015

Sales$3,150,000Cost of goods soldDirect materials$960,000Direct labor225,000Machinery repairs (variable cost)45,000Depreciationplant equipment (straight-line)315,000Utilities ($45,000 is variable)180,000Plant management salaries190,0001,915,000Gross profit1,235,000Selling expensesPackaging75,000Shipping90,000Sales salary (fixed annual amount)235,000400,000General and administrative expensesAdvertising expense100,000Salaries241,000Entertainment expense80,000421,000Income from operations$414,000

1.Prepare flexible budgets for the company at sales volumes of 14,000 and 16,000 units and classify all items listed in the fixed budget as variable or fixed.

2.

The company's business conditions are improving. One possible result is a sales volume of approximately 18,000 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 2015 budgeted amount of $414,000 if this level is reached without increasing capacity?