Question

Pebco Company’s 2011 master budget included the following fixed budget report. It is based on an...

Pebco Company’s 2011 master budget included the following fixed budget report. It is based on an expected production and sales volume of 17,000 units.

  

PEBCO COMPANY
Fixed Budget Report
For Year Ended December 31, 2011
  Sales $ 3,400,000
  Cost of goods sold
     Direct materials $ 1,005,000
     Direct labor 225,000
     Machinery repairs (variable cost) 75,000
     Depreciation—plant equipment 315,000
     Utilities ($50,000 is variable) 210,000
     Plant management salaries 215,000 2,045,000
   
  Gross profit 1,355,000
  Selling expenses
     Packaging 80,000
     Shipping 115,000
     Sales salary (fixed annual amount) 250,000 445,000
  
  General and administrative expenses
     Advertising expense 127,000
     Salaries 241,000
     Entertainment expense 100,000 468,000
  
  Income from operations $ 442,000
  
Pebco Company’s actual income statement for 2011 follows.
PEBCO COMPANY
Statement of Income from Operations
For Year Ended December 31, 2011
  Sales (20,000 units) $ 4,078,000
  Cost of goods sold
     Direct materials $ 1,198,353
     Direct labor 271,706
     Machinery repairs (variable cost) 79,235
     Depreciation—plant equipment 315,000
     Utilities (fixed cost is $157,500) 215,824
     Plant management salaries 224,000 2,304,118
  
  Gross profit 1,773,882
  Selling expenses
     Packaging 91,618
     Shipping 127,794
     Sales salary (annual) 266,000 485,412
  
  General and administrative expenses
     Advertising expense 134,000
     Salaries 241,000
     Entertainment expense 104,000 479,000
  
  Income from operations $ 809,470
  

  

Required:
1.

Prepare a flexible budget performance report for 2011. (Do not round your intermediate calculations and round your final answers to nearest dollar amount. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

PEBCO COMPANY
Flexible Budget Performance Report
For Year Ended December 31, 2011
Flexible Actual
Budget Results Variances
  (Click to select)Sales salaryAdvertising expenseSalesSalariesUtilities $ $ $ (Click to select)FNoneU
  Variable costs
     (Click to select)Advertising expenseEntertainment expenseDirect materialsDepreciation-plant equipmentSales salary (Click to select)FNoneU
     (Click to select)Direct laborAdvertising expenseEntertainment expenseSalariesDepreciation-plant equipment (Click to select)FNoneU
     (Click to select)Entertainment expenseSales salaryDepreciation-plant equipmentSalariesMachinery repairs (Click to select)UNoneF
     (Click to select)Advertising expenseUtilitiesEntertainment expenseSales salarySalaries (Click to select)UNoneF
     (Click to select)SalariesPlant management salariesAdvertising expenseEntertainment expensePackaging (Click to select)NoneUF
     (Click to select)Plant management salariesSales salariesEntertainment expenseShippingDepreciation-plant equipment (Click to select)UNoneF
  
     Total variable costs (Click to select)NoneFU
  
  (Click to select)Gross marginContribution margin    (Click to select)UFNone
  Fixed costs
     (Click to select)Depreciation-plant equipmentShippingMachinery repairsDirect materialsPackaging (Click to select)FUNone
     (Click to select)ShippingDirect laborUtilitiesDirect materialsPackaging (Click to select)UNoneF
     (Click to select)Direct materialsShippingMachinery repairsPlant management salariesDirect labor (Click to select)UFNone
     (Click to select)Sales salaryDirect laborPackagingDirect materialsMachinery repairs (Click to select)FNoneU
     (Click to select)Advertising expensePackagingShippingDirect materialsDirect labor (Click to select)NoneFU
     (Click to select)Machinery repairsSalariesDirect materialsShippingPackaging (Click to select)NoneFU
     (Click to select)ShippingDirect materialsEntertainment expensePackagingMachinery repairs (Click to select)UNoneF
  
     Total fixed costs (Click to select)NoneFU
  
  Income from operations $ $ $ (Click to select)NoneFU
  

Homework Answers

Answer #1
Flexible budget report
Variable total Flexible Actual Variance
amount fixed cost budget results
per unit
units 20,000 20,000
Sales 200 4000000 4,078,000 78,000 F
variable costs:
Direct materials 59.11765 1182353 1,198,353 16,000 U
Direct labor 13.23529 264706 271,706 7,000 U
Machinery repair 4.411765 88235 79,235 9000 F
Utilities 2.941176 58824 58,324 500 F
packaging 4.705882 94118 91,618 2500 F
shipping 6.764706 135294 127,794 7500 F
total variable costs 91.17647 1823530 1,827,030 3,500 U
contribution margin 108.8235 2176470 2,250,970 74,500 F
fixed costs:
Depreciation-plant equipment 315,000 315,000 315,000 0 N
utilities 160000 160000 157,500 2,500 F
plant management salaries 215,000 215,000 224,000 9,000 U
sales salary 250,000 250,000 266,000 16,000 U
advertising 127,000 127,000 134,000 7,000 U
Salaries 241,000 241,000 241,000 0 N
Entertainment expense 100,000 100,000 104,000 4,000 U
total fixed costs 1,408,000 1,441,500 33,500 U
income from operations 768,470 809,470 41,000 F
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