Q15E - Horngren'S Financial And Managerial Accounting

Question

Office Plus sells its main product, ergonomic mouse pads, for \(13 each. Its variable cost is \)5.10 per pad. Fixed costs are \(205,000 per month for volumes up to 65,000 pads. Above 65,000 pads, monthly fixed costs are \)250,000. Prepare a monthly flexible budget for the product, showing sales revenue, variable costs, fixed costs, and operating income for volume levels of 45,000, 55,000, and 75,000 pads.

Step-by-Step Solution

Answer

The flexible budget for office plus is prepared with volume levels of 45,000, 55,000 and 75,000 pads.

Step 1: Definition of flexible budget

A flexible budget is a budget prepared by the company's management that adjusts with any variations in the the activity.

 

Step 2: Preparation of flexible budget

Flexible Budget
Particulars	Per unit ($)	45,000 ($)	55,000 ($)	75,000 ($)
Sales	13.00	585,000	715,000	975,000
Variable cost	5.10	229,500	280,500	382,500
Contribution Margin	7.90	355,500	434,500	592,500
Fixed Cost		205,000	205,000	250,000
Income/(loss) (C – D)		150,500	229,500	342,500