Question

Appliance Possible 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 90,000, 100,000, and 110,000 units.

Variable costs

Manufacturing .... $6 per unit

Administrative .... $4 per unit

Selling ........ $3 per unit

Fixed costs

Manufacturing ........ $160,000

Administrative ........ $ 80,000

Instructions (a) Prepare a flexible budget for each of the possible production levels: 90,000, 100,000, and 110,000 units.

(b) If AP sells the toaster ovens for $16 each, how many units will it have to sell to make a profit of $60,000 before taxes?

Answer 1

Flexible Production cost budget
Production levels(Units)	90000	100000	110000
Variable costs:
Manufacturing ($6 per unit)	540000	600000	660000
Administrative($4 per unit)	360000	400000	440000
Selling($3 per unit)	270000	300000	330000
Total variable costs	1170000	1300000	1430000
Fixed Costs:
Manufacturing	160000	160000	160000
Administrative	80000	80000	80000
Total Fixed costs	240000	240000	240000
Total costs	1410000	1540000	1670000
b
Units to be sold = (60000+240000)/(16-6-4-3)= 100000