Question

Engineworks Co. provides the following fixed budget data for the year: Sales (20,000 units) ……………………………. ​ $600,000 Cost of sales: ​ ​ Direct materials …………………………….. $200,000 ​ Direct labor ………………………………… 160,000 ​ Variable overhead ………………………….. 60,000 ​ Fixed overhead …………………………….. 80,000 500,000 Gross profit ……………………………………. ​ $100,000 Operating expenses: ​ ​ Fixed ……………………………………….. $12,000 ​ Variable ……………………………………. 40,000 52,000 Income from operations ……………………….. ​ $ 48,000 The company's actual activity for the year follows: ​ ​ Sales (21,000 units) ……………………………. ​ $651,000 Cost of goods sold: ​ ​ Direct materials …………………………….. $231,000 ​ Direct labor ………………………………… 168,000 ​ Variable overhead ………………………….. 73,500 ​ Fixed overhead …………………………….. 77,500 550,000 Gross profit ……………………………………. ​ $101,000 Operating expenses: ​ ​ Fixed ………………………………………. 12,000 ​ Variable ……………………………………. 39,500 51,500 Income from operations ………………………. ​ $ 49,500 Required: Prepare a flexible budget performance report for the year using the contribution margin format. (15 points, please label your answer in the flexible budget format)

Answer 1

Flexible Contribution Margin 147,000

Actual Contribution Margin 139,000

Variance 8000 unfavorable

Step-by-step explanation:

Engine Works Company

Flexible Budget Performance Report

For the year using the Contribution Margin Format

Actual Static Flexible

(21,000 units) (20,000 units) (21,000 units)

Sales …$651,000 $600,00 630,000 Fav

V. Cost of goods sold: ​ ​ 512,000 $ 460,000 483,000 Unfav

Direct materials .$231,000 ​ $200,000 210,000

Direct labor 168,000 ​ 160,000 168,000

Variable overhead 73,500 ​ 60,000 63,000

Variable Operating Expenses 39,500 40,000 42,000

Contribution Margin $139,000 140,000 147,000 Unfav

Fixed Expenses

Fixed Operating Expenses 12,000 ​ 12000 12000

Fixed overhead 77,500 80,000 84,000

Income from operations ​ $ 49,500 $ 48,000 $51,000 Fav

Working

Flexible Calculations = (600,000/20,000)*21,000= $ 630,000

V. Cost of goods sold= ($ 460,000 /20,000)*21,000= 483,000

Direct materials . = $200,000 /20,000)*21,000= 210,000

Direct labor = 160,000/20,000)*21,000= 168,000

Variable overhead = 60,000 /20,000)*21,000= 63,000

Variable Operating Expenses = 40,000 /20,000)*21,000= 42,000

All calculations are carried out in the same way. Dividing the amount in the given budget with the number of units and multiplying it with actual number of units.

Flexible Contribution Margin 147,000 and Actual Contribution Margin 139,000 which shows a Variance of 8000 which is unfavorable.