Phoenix Companys 2019 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, 2019
Sales				$	3,300,000
Cost of goods sold
Direct materials	$	930,000
Direct labor		240,000
Machinery repairs (variable cost)		45,000
DepreciationPlant equipment (straight-line)		315,000
Utilities ($45,000 is variable)		210,000
Plant management salaries		200,000			1,940,000
Gross profit					1,360,000
Selling expenses
Packaging		90,000
Shipping		105,000
Sales salary (fixed annual amount)		235,000			430,000
General and administrative expenses
Advertising expense		150,000
Salaries		241,000
Entertainment expense		80,000			471,000
Income from operations				$	459,000

1&2. 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.

PHOENIX COMPANY
Flexible Budgets
For Year Ended December 31, 2019
	Flexible Budget		Flexible Budget for:
	Variable Amount per Unit	Total Fixed Cost	Units Sales of 14,000	Unit Sales of 16,000
Sales
Variable costs
Direct materials
Direct labor
Machinery repairs
Utilities
Packaging
Shipping
Total variable costs
Contribution margin
Fixed costs
DepreciationPlant equipment (straight-line)
Plant management salaries
Sales salary
Advertising expense
Salaries
Entertainment expense
Income from operations

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Problem 08-1A Part 3

3. The companys business conditions are improving. One possible result is a sales volume of 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 budgeted amount of $459,000 if this level is reached without increasing capacity?