Question

Question 2 : Sharqiya Company estimates sales of 15,000 units for the upcoming period. At this sales volume its budgeted income is as follows:

    Per Unit      Total
Sales   $   60         $   900,000     
Less variable costs:                       
Manufacturing costs      30            450,000     
Selling and administrative costs      10            150,000     
Contribution margin   $   20         $   300,000     
Less fixed costs:                       
Manufacturing costs                  125,000     
Selling and administrative costs                  155,000     
Net income               $   20,000     

During the period the company actually produced and sold 18,000 units.

Required:
Prepare a flexible budget based on 18,000 units.

Answer:
    Per Unit      18,000 Units
Sales   $   ?         $   ?     
Less variable costs:                       
Manufacturing costs      ?            ?     
Selling and administrative costs      ?            ?     
Contribution margin   $   ?         $   ?     
Less fixed costs:                       
Manufacturing costs                  ?     
Selling and administrative costs                  ?     
Net income               $   ?     

Answer 1

Flexible budget for 18,000 units will be prepared as follows:

Flexible Budget
	Per Unit	18,000 Units
Sales	60	1080000
Less variable costs:
Manufacturing costs	30	540000
Selling and administrative costs	10	180000
Contribution margin	20	360000
Less fixed costs:
Manufacturing costs		125000
Selling and administrative costs		155000
Net income		80000

Above figures have been calculated in the following manner:

Flexible Budget
	Per Unit	18,000 Units
Sales	60	=18000*60
Less variable costs:
Manufacturing costs	30	=18000*30
Selling and administrative costs	10	=18000*10
Contribution margin	20	=18000*20
Less fixed costs:
Manufacturing costs		125000
Selling and administrative costs		155000
Net income		=360000-125000-155000