Garland Company expects to sell 600 wreaths in December 2018, but wants to plan for 100 more and 100 less than expected. The wreaths sell for $5.00 each and have variable costs of $2.00 each. Fixed costs are expected to be $500 for the month. Prepare a flexible budget for 500, 600, and 700 wreaths.
Prepare a flexible budget for Company G.
Explanation of Solution
Flexible overhead budget:
A flexible overhead budget is referred as a thorough plan for controlling the overhead cost, and is valid for the firm’s relevant range of activity. Based on the standard input the flexible overhead budget is measured. (Example: Machine hours)
Prepare a flexible budget for Company G as follows:
Company G Flexible Budget For the Month Ended December 31, 2018 | ||||
Particulars | Amount in ($) | |||
Net sales revenue (1) | $2,500 | $3,000 | $3,500 | |
Less: Variable costs (2) | 1,000 | 1,200 | 1,400 | |
Contribution Margin | 1,500 | 1,800 | 2,100 | |
Less: Fixed Costs | 500 | 500 | 500 | |
Operating Income | $1,000 | $1,300 | $1,600 |
Table (1)
Working note (1):
Compute the net sales revenue:
Particulars | For 500 units | For 600 units | For 700 units |
Number of Units (a) | 500 | 600 | 700 |
Selling costs per unit (b) | $5.0 | $5.0 | $5.0 |
Net sales revenue | $2,500 | $3,000 | $3,500 |
Table (2)
Working note (2):
Compute the variable costs:
Particulars | For 500 units | For 600 units | For 700 units |
Number of Units (a) | 500 | 600 | 700 |
Variable costs per unit (b) | $2.0 | $2.0 | $2.0 |
Variable factory overhead cost | $1,000 | $1,200 | $1,400 |
Table (3)
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