Toronto Company's 2009 master budget included the following fixed budget report. It is based on an expected production and sales volume of 10,000 units.

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 8.3) for the company at sales volumes of 9,500 and 10,500 units.
3. The company's business conditions are improving. One possible result is a sales volume of approximately 12,000 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 2009 budgeted amount of $62,500 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 2009 could fall to 8,000 units. How much income (or loss) from operations would occur if sales volume falls to thislevel?

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TORONTO COMPANY Flxed Budget Report For Year Ended December 31, 2009 $1,500,000 Cost of goods sold Machlnery repalrs (varlable cost) 28.500 Plant manager salarles.. 70,000 053,500 446,500 Gross profit Selling expenses Packaging Shipping Sales sala 40,000 58,000 .80,000 I mount) General and administrative expenses ry (fixed annual a 178,000 Advertising. Salarles..120,500 Entertalnment expense . 40,500 45,000 206,000 $ 62.500