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The president of the company, Gregory Peters, has come to you for help
The president of the company, Gregory Peters, has come to you for help. Use the following data to prepare a flexible budget for possible sales/production levels of 10,000, 11,000, and 12,000 units. Show the contribution margin at each activity level. Sales price $24 per unit Variable costs: Manufacturing $12 per unit Administrative $ 3 per unit Selling $ 1 per unit Fixed costs: Manufacturing $60,000 Administrative $20,000
Expert Solution
In the flexible budget, we will calculate the budgeted income. Fixed costs will remain fixed at all levels of output. Variable costs will vary in the proportion of output (or per unit variable cost will remain same). Flexible budget is given below:
Flexible budget:
| Description | 10000 units | 11000 units | 12000 units |
| Sales ($24 * Number of units) | $240000 | $264000 | $288000 |
| Less: Variable cost | |||
| Manufacturing ($12 * Number of units) | $120000 | $132000 | $144000 |
| Administrative ($3 * Number of units) | $30000 | $33000 | $36000 |
| Selling ($1 * Number of units) | $10000 | $11000 | $12000 |
| Total variable cost | ($160000) | ($176000) | ($192000) |
| Contribution margin | $80000 | $88000 | $96000 |
| Less: Fixed costs | |||
| Manufacturing | ($60000) | ($60000) | ($60000) |
| Administrative | ($20000) | ($20000) | ($20000) |
| Net income | $0 | $8000 | $16000 |
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