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Exercise 25-07 a-b Lily Inc
Exercise 25-07 a-b Lily Inc. (AP) is a manufacturer of toaster ovens. To improve control over operations, the president of AP wants to begin using a flexible budgeting system, rather than use only the current master budget. The following data are available for AP's expected costs at production levels of 86,000, 97,000, and 108,000 units. Variable costs Manufacturing Administrative Selling Fixed costs Manufacturing Administrative $6 per unit $4 per unit $2 per unit $138,000 $77,000 Prepare a flexible budget for each of the possible production levels: 86,000, 97,000, and 108,000 units. (List variable costs before fired costs.) LILY INC. Flexible Production Cost Budget $ > > >
> > > $ $ If AP sells the toaster ovens for $16 each, how many units will it have to sell to make a profit of $225,800 before taxes? Units to be sold
Fixed Costs Manufacturing Selling Total Fixed Costs Total Costs Administrative Production Levels Total Variable Costs Variable Costs Activity Level
Expert Solution
Under Flexible Budget is the budget which get adjusted as per change in Activity level and Standard cost changes with changes in Quantity but remains sames for per unit cost but fixed cost remains same as it does not changes with change in Quantity .
Calculation of Flexible production budget
| Activity Level | |||
| Production Level | 86000 | 97000 | 108000 |
| Variable Costs | |||
| Manufacturing |
$6*86000 516000 |
$6*97000 582000 |
$6*108000 648000 |
| Administrative |
$4*86000 344000 |
$4*97000 388000 |
$4*108000 432000 |
| Selling |
$2*86000 172000 |
$2*97000 194000 |
$2*108000 216000 |
| Total Variable Costs (6+4+2)=$12/ unit | 1032000 | 1164000 | 1296000 |
| Fixed Costs | |||
| Manufacturing | 138000 | 138000 | 138000 |
| Administrative | 77000 | 77000 | 77000 |
| Total Fixed Cost s | 215000 | 215000 | 215000 |
| Total Costs (Variable + Fixed ) | 1247000 | 1379000 | 1511000 |
Units to be sold 110200
Calculation
If AP sells the toaster for $16 each
Formula for Sales to earn desired Profit is
Sales (Units )=( Fixed Cost + Profit )/ Contribution Margin per unit
Total Fixed Cost = 138000+77000=$215000
Variable cost per unit = 6+4+2=$12
Contribution margin per unit = Selling price per unit - Variable Cost per unit
=$16-12
=$4 per unit
Sales to earn Desire Profit = $(215000+225800)/4
=110200 units
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