Question

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

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