Answer:
Appliance Possible Inc. (AP)
a) Flexible Budgets for productions level:
i) Production level of 90,000 units:
Unit variable cost = $13 $(7+4+2)
Total Variable Costs = 90,000 x $13 = $1,170,000
Fixed Costs = $225,000
Total Costs = $1,395,000
ii) Production level of 105,000 units:
Total Variable costs = 105,000 x $13 = $1,365,000
Fixed Costs = $225,000
Total Costs = $1,590,000
iii) Production level of 120,000 units:
Total Variable costs = 120,000 x $13 = $1,560,000
Fixed Costs = $225,000
Total Costs = $1,785,000
b) If AP sells the toaster ovens for $18 each, to make a profit of $309,000 before taxes, units to be sold are:
Break-even Point + Target Profit = (Fixed Cost + Target Profit)/Contribution per unit
Contribution per unit = $18 - $13 = $5
= ($225,000 + $309,000)/ $5
= $534,000/$5
= 106,800 units
Explanation:
a) A flexible budget tries to change the level of output. It is a technique used to assess performance under different volumes or activities. It helps management to make the right decisions, given the fact that different levels of activity may call for different cost and revenue reflections.
b) To make a target profit, the fixed cost is added to the target profit and divided by the unit contribution. This produces the number of units to be sold in order to achieve the target profit.
c) Contribution is the difference between the selling value and the variable costs. It is the element that covers fixed costs and generates profit before taxes.
a) The flexible budget is the budgetary control tool that is prepared by the organizations having different levels of production but the variable cost per unit and the total fixed cost are always constant.
b) The units sold are 106,800 for attaining a profit of $309,000.
a) The flexible budget for each of the production levels is prepared in the image attached below.
b) The number of units sold to attain the profit limit of $309,000 is determined by taking the break-even formula.
It is computed as follows:
Given,
selling price= $18
targeted profit= $309,000
fixed cost= $225,000
variable cost= $13
[tex]\text{Break-even point}=\dfrac{\text{Fixed cost}+\text{Targeted profit}}{\text{Contribution margin}}\\\\=\dfrac{\$225,000+\$309,000}{\text{Selling price}-\text{Variable cost}}\\\\=\dfrac{\$225,000+\$309,000}{\$18-\$13}\\\\=106,800\;\text{units}[/tex]
To know more about the flexible budget, refer to the link:
