Tohono Company's 2017 master budget included the following fixed budget report. It is based on an expected production and sales volume of 20,000 units. PR Prc TOHONO COMPANY Fixed Budget Report For Year Ended December 31, 2017 Pre of a P1 $3,000,000 Sales Cost of goods sold $1,200,000 Direct materials Direct labor... 260,000 57,000 Machinery repairs (variable cost) 250,000 Depreciation-Machinery (straight-line). 200,000 Utilities (25 % is variable cost) Plant manager salaries Gross profit... 140,000 2,107,000 893,000 Selling expenses Packaging.. Shipping.. 80,000 116,000 160,000 356,000 Sales salary (fixed annual amount) General and administrative expenses 81,000 Advertising.. 241,000 Salaries.... 90,000 412,000 Entertainment expense $ 125,000 Income from operations. Required 1. Classify all items listed in the fixed budget as variable or fixed. Also determine their amounts per unit or their amounts for the year, as appropriate. 2. Prepare flexible budgets (see Exhibit 23.3) for the company at sales volumes of 18,000 and 24,000 units. 3. The company's business conditions are improving. One possible result is a sales volume of 28,000 units. The company president is confident that this volume is within the relevant range of exist- ing capacity. How much would operating income increase over the 2017 budgeted amount of $125,000 if this level is reached without increasing capacity? 4. An unfavorable change in business is remotely possible; in this case, production and sales volume for 2017 could fall to 14,000 units. How much income (or loss) from operations would occur if sales vol- ume falls to this level? Refer to the information in Problem 23-1B, Tohono Company's actual income statement for 2017 follows. alysis of TOHONO COMPANY Statement of Income from Operations For Year Ended December 31, 2017 $3,648,000 Sales (24,000 units). Cost of goods sold $1,400,000 Direct materials 360,000 Direct labor.... 60,000 Machinery repairs (variable cost) 250,000 Depreciation-Machinery 218,000 Utilities (variable cost, $64,000). Plant manager salaries Gross profit. blupe 2,443,000 1,205,000 155,000 6ayaren Selling expenses 90,000 Packaging.. 124,000 Shipping 376,000 162,000 Sales salary (annual) General and administrative expenses 104,000 Advertising expense no obd 232,000 Salaries 436,000 100,000 Entertainment expense $ 393,000 Income from operations Required 1. Prepare a flexible budget performance report for 2017 Analysis Component 2. Analyze and interpret both the (a) sales variance and (b) direct materials cost variance. Suncoast Company set the following standard costs for one unit of its product
