Phoenix Companys 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: $3,000,000 Cost of goods sold Direct materials: $975,000 Direct labor: $240,000 Machinery repairs (variable cost): $45,000 Depreciationplant equipment (straight-line): $315,000 Utilities ($60,000 is variable): $195,000 Plant management salaries: $200,000 $1,970,000 Gross profit $1,030,000 Selling expenses Packaging $90,000 Shipping $105,000 Sales salary (fixed annual amount) $235,000 $430,000 General and administrative expenses Advertising expense $100,000 Salaries $230,000 Entertainment expense $90,000 $420,000 Income from operations $180,000

a. 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.

FIXED BUDGET REPORT FOR YEAR ENDED DECEMBER 2015

	VARIABLE AMOUNT PER UNIT	TOTAL FIXED COST	UNIT SALES OF 14,000	UNIT SALES OF 16,000
SALES
VARIABLE COSTS
-DIRECT MATERIALS
-DIRECT LABOR
-MACHINERY REPAIRS
-UTILITIES
-PACKAGING
-SHIPPING
	$
-CONTRIBUTION MARGIN
FIXED COSTS
-DEPRECIATION (PLANT EQUIPMENT) (STRAIGHT LINE)
UTILITIES
PLANT MANAGEMENT SALARIES
SALES SALARY
ADVERTISING EXPENSE
SALARIES
ENTERTAINMENT EXPENSE

INCOME FROM OPERATIONS:

b. The companys 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 $180,000 if this level is reached without increasing capacity?

FORECASTED MARGIN INCOME STATEMENT FOR YEAR ENDED DECEMBER 31,2015

SALES (IN UNITS)	15,000	18,000
CONTRIBUTION MARGIN (PER UNIT)
CONTRIBUTION MARGIN
FIXED COSTS
EXPECTED INCREASE IN OPERATING INCOME

c. An unfavorable change in business is remotely possible; in this case, production and sales volume for 2015 could fall to 12,000 units. How much income (or loss) from operations would occur if sales volume falls to this level? (Enter any loss with minus sign.)

FORECASTED CONTRIBUTION MARGIN INCOME STATEMENT FOR YEAR ENDED DECEMBER 31, 2015

SALES (IN UNITS)	15,000	12,000
CONTRIBUTION MARGIN PER UNIT
CONTRIBUTION MARGIN
FIXED COSTS
OPERATING INCOME (LOSS)