Question

Flexible Budgets

A chair manufacturer has established the following flexible budget for the month

Units produced and sold

	1,000	1,500	2,000
Sales	$ 10,000	$ 15,000	$ 20,000
Variable costs	(5,000)	(7,500)	(10,000)
Fixed cost	(2,000)	(2,000)	(2,000)
Profit	$ 3,000	$ 5,500	$ 8,000

Required

a. what is the sales price per chair?

b. what is the expected profit if 1,600 chairs are made

Answer 1

1) Sales price per chair = [Sales (in dollars) / Number of units] = [$10,000 / 1,000 units] = $10/unit

2) Variable cost per unit = Variable costs/ Number of units = [$5,000/1,000 units] = $5/unit

Revenues ($10/unit * 1,600 chairs)   $16,000     
Variable costs ($5/unit * 1,600 chairs)   ($8,000)     
Fixed costs   ($2,000)     
Expected profit of making and selling 1,600 chairs    $6,000