McElroy Company has prepared the following master budget for
2016. Although McElroy has the capacity to manufacture 50,000
units, management expected the likely demand for its product to be
40,000 units in 2016; as such, it prepared the master budget to
manufacture and sell 40,000 units. In early January 2017, the
company was pleasantly surprised to find out that it manufactured
and sold 45,000 units in 2016.
McElroy Company |
||
Sales |
$2,800,000 |
|
Cost of Goods Sold: |
||
Direct materials |
$800,000 |
|
Direct labor |
300,000 |
|
Indirect materials (variable) |
24,000 |
|
Indirect labor (variable) |
36,000 |
|
Depreciation |
300,000 |
|
Salaries |
200,000 |
|
Utilities (80% fixed) |
100,000 |
|
Maintenance (40% variable) |
50,000 |
1,810,000 |
Gross profit |
$990,000 |
|
Operating expenses: |
||
Commissions (5% of sales) |
$140,000 |
|
Advertising (fixed) |
150,000 |
|
Wages (variable) |
100,000 |
|
Rent (fixed) |
50,000 |
|
Total operating expenses |
440,000 |
|
Operating Income |
$550,000 |
Prepare the flexible budget (FB) for the actual operating level achieved in 2016.
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