Required information

Problem 08-1A Preparing and analyzing a flexible budget LO P1, A1

[The following information applies to the questions displayed below.] 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				$	3,000,000
Cost of goods sold
Direct materials	$	975,000
Direct labor		210,000
Machinery repairs (variable cost)		60,000
DepreciationPlant equipment (straight-line)		300,000
Utilities ($45,000 is variable)		210,000
Plant management salaries		220,000			1,975,000
Gross profit					1,025,000
Selling expenses
Packaging		75,000
Shipping		90,000
Sales salary (fixed annual amount)		235,000			400,000
General and administrative expenses
Advertising expense		125,000
Salaries		230,000
Entertainment expense		90,000			445,000
Income from operations				$	180,000

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
	0.00		0	0
Contribution margin
Fixed costs
DepreciationPlant equipment (straight-line)
Utilities
Plant management salaries
Salaries
Sales salary
Advertising expense
Entertainment expense
Total fixed costs		$0	$0	$0
Income from operations

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 $180,000 if this level is reached without increasing capacity?

PHOENIX COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2019
Sales (in units)	15,000	18,000	-1
Contribution margin (per unit)
Contribution margin
Fixed costs
Operating income				Operating income increase

4. An unfavorable change in business is remotely possible; in this case, production and sales volume for the year 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.)

PHOENIX COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2019
Sales (in units)	15,000	12,000
Contribution margin (per unit)
Contribution margin
Fixed costs
Operating income (loss)