Required information Problem 23-1A Preparing and analyzing a flexible budget LO P1, A1 [The following information applies to the questions displayed below.) Phoenix Company's 2019 master budget included the following fixed budget report. It is based on an expected production and sales volume of 15,000 units. $3,150,000 PHOENIX COMPANY Fixed Budget Report For Year Ended December 31, 2019 Sales Cost of goods sold Direct materials $915,000 Direct labor 240,000 Machinery repairs (variable cost) 60,000 Depreciation-Plant equipment (straight-line) 315,000 Utilities ($45,000 is variable) 195,000 Plant management salaries 220,000 Gross profit Selling expenses Packaging 75,000 Shipping 105,000 Sales salary (fixed annual amount) 235,000 General and administrative expenses Advertising expense 150,000 Salaries 230,000 Entertainment expense 85,000 Income from operations 1,945,000 1,205,000 415,000 465,000 325,000 $ PHOENIX COMPANY Flexible Budgets For Year Ended December 31, 2019 Flexible Budget Variable Total Fixed Amount per Cost Unit Flexible Budget for: Units Unit Sales of Sales of 14,000 16,000 $ $ 2,940,000 3,360,000 Sales $ 210.00 Variable costs Direct materials Direct labor 61.00 854,000 16.00 3.00 X Machinery repairs Utilities OOOOOO 224,000 42,000 X 42,000 70,000 98,000 3.00 976,000 256,000 48,000 X 48,000 80,000 112,000 xolos 5.00 Packaging Shipping 7.00 95.00 1,330,000 1,520,000 1,610,000 X 1,840,000 X $ 115.00 X 330,000 330,000 X 330,000 Total variable costs Contribution margin Fixed costs DepreciationPlant equipment (straight- line) Utilities Plant management salaries Sales salary Advertising expense Salaries 150,000 OOOOOOO 210,000 235,000 125,000 230,000 80,000 X 150,000 210,000 235,000 125,000 230,000 80,000 X 150,000 210,000 235,000 125,000 230,000 Entertainment expense 80,000 Total fixed costs $ 1,360,000 $ $ 1,360,000 1,360,000 $ 250,000 X $ 480,000 X Income from operations 3. The company's 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 $325,000 if this level is reached without increasing capacity? Answer is complete but not entirely correct. PHOENIX COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2019 15,000 18,000 Sales (in units) Contribution margin (per unit) Contribution margin $ 115.00 $ 115.00 $1,725,000 $ 2,070,000 1,360,000 Fixed costs 1,360,000 Operating income $ 365,000 $ 710,000 $ 345,000 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.) X Answer is complete but not entirely correct. PHOENIX COMPANY Forecasted Contribution Margin Income Statement For Year Ended December 31, 2019 Sales (in units) 15,000 12,000 Contribution margin (per $ 115.00 X $ 115.00 unit) Contribution margin $ 1,725,000 X $ 1,380,000 Fixed costs 1,360,000 X 1,360,000 Operating income (loss) $ 365,000 X $ 20,000 X
