Q2SE - Horngren'S Financial And Managerial Accounting

Question

Preparing flexible budgets

Moje, Inc. manufactures travel locks. The budgeted selling price is \(19 per lock, thevariable cost is \)9 per lock, and budgeted fixed costs are $13,000 per month. Prepare aflexible budget for output levels of 4,000 locks and 11,000 locks for the month endedApril 30, 2018.

Step-by-Step Solution

Answer

The flexible budget of a company shows $27,000 operating income for 4,000 units and $97,000 operating income for 11,000 units for the month ended April 30, 2018.

Step 1:Explanation on flexible budget

A flexible budget is a budget that adjusts to the volume or activity levels of an organisation. The flexible budget can be utilized for the determination of budgeted expenses, sales, and profits at different levels of activity.

Step 2: Flexible budget

 

Moje, Inc.
Flexible Budget
For the month of April 30, 2018
Units	4,000	11,000
Sales Revenue @$19	$76,000	$209,000
Less:VariableCost @$9	($36,000)	($99,000)
Contribution margin	$40,000	$110,000
Less: Fixed cost	($13,000)	($13,000)
Operating Income	$27,000	$97,000