Question

Tempo Company's fixed budget (based on sales of 14,000 units) for the first quarter of calendar year 2017 reveals the following.

Fixed Budget
Sales (14,000 units) $3,024,000
Cost of goods sold
Direct materials $336,000
Direct labor 588,000
Production supplies 364,000
Plant manager salary 136,000 1,424,000
Gross profit 1,600,000
Selling expenses
Sales commissions 98,000
Packaging 224,000
Advertising 100,000 422,000
Administrative expenses
Administrative salaries 186,000
Depreciation—office equip. 156,000
Insurance 126,000
Office rent 136,000 604,000
Income from operations $574,000
Complete the following flexible budgets for sales volumes of 12,000, 14,000, and 16,000 units. (Round cost per unit to 2 decimal places.)

Answer 1

To complete the flexible budgets for different sales volumes, divide the total cost by the number of units. Multiply the cost per unit by the sales volumes to calculate the expenses for each scenario. The completed flexible budget for sales volumes of 12,000, 14,000, and 16,000 units is shown above.

Step-by-step explanation:

To complete the flexible budgets for sales volumes of 12,000, 14,000, and 16,000 units, we need to determine the cost per unit for each expense category. The cost per unit can be calculated by dividing the total cost by the number of units in the fixed budget. For example, the cost per unit for direct materials is $336,000 divided by 14,000 units, which is $24 per unit. Similarly, we can calculate the cost per unit for direct labor, production supplies, and other expense categories. Once we have the cost per unit, we can multiply it by the sales volumes to calculate the expenses for each scenario. Here is the completed flexible budget:

Flexible Budget

Sales Volume: 12,000 units

• Sales: $2,592,000
• Cost of Goods Sold: $1,248,000
• Gross Profit: $1,344,000
• Selling Expenses: $412,000
• Administrative Expenses: $564,000
• Income from Operations: $368,000

Sales Volume: 14,000 units

• Sales: $3,024,000
• Cost of Goods Sold: $1,424,000
• Gross Profit: $1,600,000
• Selling Expenses: $422,000
• Administrative Expenses: $604,000
• Income from Operations: $574,000

Sales Volume: 16,000 units

• Sales: $3,456,000
• Cost of Goods Sold: $1,600,000
• Gross Profit: $1,856,000
• Selling Expenses: $432,000
• Administrative Expenses: $644,000
• Income from Operations: $780,000