Fundamental Accounting Principles: P23-3A Phoenix Company’s 2013 master budget included

Fundamental Accounting Principles 
Problem 23-3A Preparation and analysis of a flexible budget 
Phoenix Company’s 2013 master budget included the following fixed budget report. It is based on an expected production and sales volume of 15,000 units. 
Fixed Budget Report 
For Year Ended December 31, 2013 
Sales 3,000,000 
Cost of goods sold 
Direct materials 975,000 
Direct labor 225,000 
Machinery repairs (variable cost) 60,000 
Depreciation — Plant equipment 300,000 
Utilities ($45,000 is variable) 195,000 
Plant management salaries 200,000 1,955,000 
Gross profit 1,045,000 
Selling expenses 
Packaging 75,000 
Shipping 105,000 
Sales salary (fixed annual amount) 250,000 430,000 
General and administrative expenses 
Advertising expense 125,000 
Salaries 241,000 
Entertainment expense 90,000 456,000 
Income from operations $159,000 

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 24.3) for the company at sales volumes of 14,000 and 16,000 units. 
3. The company’s business conditions are improving. One possible result is a sales volume of approximately 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 2013 budgeted amount of $159,000 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 2013 could fall to 12,000 units. How much income (or loss) from operations would occur if sales volume falls to this level?
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