Tohono Company's 2019 master budget included the following fixed budget report. It is based on an expected production and sales volume of 20,000 units. Fleed Budget Report For Year Ended December 31, 2019 Sales $3,000,000 Cost of goods sold Direct materials $1,200,000 Direct labor 260,000 Machinery repairs (variable cost) 57,000 Depreciation-Machinery (straight-line) 250,000 Utilities (25% is variable cost) 200,000 Plant manager salaries 140,000 2,107,000 Gross profit 893,000 Selling expenses Packaging 80,000 Shipping 116,000 Sales salary (fixed annual amount) 160,000 356,000 General and administrative expenses Advertising 81,000 Salaries 241,000 Entertainment expense 90,000 412,000 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 existing capacity. How much would operating income increase over the 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 the year could fall to 14,000 units. How much income (or loss) from operations would occur if sales volume falls to this level? Flexible Budget for Unit Sales of 18,000 Flexible Budget for Unit Sales of 24,000 Flexible Budget Variable Total Amount Fixed Part 1 Per Unit Costs Variable sales (total divided by 20,000 units) Sales Variable costs (total divided by 20,000 units) Direct Materials Direct Labor Machinery Repairs Utilities Packaging Shipping Total variable costs Contribution Margin Fixed costs Depreciation Machinery Utilities (75% fixed) Plant management salaries Sales salary Advertising expense Salaries Entertainment expense Total fixed costs Income from operations Potential sales (units) 28,000 A quicker method This is if there no increase in Fixed Costs Operating income (loss) at 14,000 units