Pheonix Company’s 2015 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, 2015 Sales Cost of goods sold: Direct materials Direct labor Machinery repairs (Variable cost) Depreciation-Equipment- straight-line Utilities ($45,000 is variable) Plant managers salaries Gross Profit Selling expenses: Packaging Shipping Sales salaries (fixed annual amount) General/Adm. Expenses: Advertising Expense Salaries Entertainment expense Income from operations $975,000 225,000 60,000 300,000 195,000 200,000 75,000 105,000 250,000 125,000 241,000 90,000 $3,000,000 1,955,000 1,045,000 430,000 456,000 $159,000 Required 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. Prepare flexible budget for the company at volumes of 14,000 and 16,000 units. 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 2015 budgeted amount of $159,000 if this level is reached without increasing capacity?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Problem 3.
Pheonix Company’s 2015
PHOENIX COMPANY
Fixed Budget Report
For Year Ended December 31, 2015
|
Sales Cost of goods sold: Direct materials Direct labor Machinery repairs (Variable cost) Utilities ($45,000 is variable) Plant managers salaries Gross Profit Selling expenses: Packaging Shipping Sales salaries (fixed annual amount) General/Adm. Expenses: Advertising Expense Salaries Entertainment expense Income from operations
|
$975,000 225,000 60,000
300,000
195,000
200,000
75,000 105,000 250,000
125,000 241,000 90,000
|
$3,000,000
1,955,000 1,045,000
430,000
456,000 $159,000 |
Required
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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.
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Prepare flexible budget for the company at volumes of 14,000 and 16,000 units.
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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 2015 budgeted amount of $159,000 if this level is reached without increasing capacity?
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An unfavorable change in business is remotely possible; in this case, production and sales volume for 2015 could fall to 12,000 units. How much income (or loss) from operation would occur if sales volume falls to this level?
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