Question: Tohono Company’s 2013 master budget included
Tohono Company’s 2013 master budget included the following fixed budget report. It is based on an expected production and sales volume of 20,000 units.
Required1. Classify all items listed in the fixed budget as variable or fixed. Also determine their amounts per unit or their amounts for the year, as appropriate.2. Prepare flexible budgets (see Exhibit 8.3) for the company at sales volumes of 18,000 and 24,000 units.3. The company’s business conditions are improving. One possible result is a sales volume ofapproximately 28,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2013 budgeted amount of $125,000 if this level is reached without increasing capacity?4. An unfavorable change in business is remotely possible; in this case, production and sales volume for 2013 could fall to 14,000 units. How much income (or loss) from operations would occur if sales volume falls to this level?
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TOHONO COMPANY Fixed Budget Report For Year Ended December 31, 2013 Sales... $3,000,000 Cost of goods sold Direct materials $1,200,000 Direct labor. 260.000 Machinery repairs (variable cost) 57,000 Depreciation-machinery Utilities (25% is variable cost) 250,000 200,000 Plant manager salaries 140,000 2,107.000 Gross profit. 893,000 Selling expenses Packaging Shipping Sales salary (fixed annual amount) 80,000 116,000 160,000 356,000 General and administrative expenses Advertising 81,000 Salaries 241,000 Entertainment expense. Income from operations 90,000 412,000 $ 125,000
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