Crane Corporation’s master (static) budget for the year is shown below: Sales (60,000 units) $ 1,860,000 Cost of goods sold: Direct materials $ 168,000 Direct labor 450,000 Overhead (variable overhead applied at 40% of direct labor cost) 240,000 858,000 Gross profit $ 1,002,000 Selling expenses: Sales commissions (all variable) $ 167,400 Rent (all fixed) 40,000 Insurance (all short-term fixed) 30,000 General expenses: Salaries (all short-term fixed) 92,000 Rent (all short-term fixed) 77,000 Depreciation (all short-term fixed) 50,000 456,400 Operating income $ 545,600 Required: 1. During the year, the company manufactured and sold 55,000 units of product. Prepare a flexible budget for this level of output. 2. Now suppose that the actual level of output was 65,000 units. Prepare a flexible budget for this output level
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
8.
Crane Corporation’s
| Sales (60,000 units) | $ | 1,860,000 | ||||
| Cost of goods sold: | ||||||
| Direct materials | $ | 168,000 | ||||
| Direct labor | 450,000 | |||||
| Overhead (variable overhead applied at 40% of direct labor cost) |
240,000 | 858,000 | ||||
| Gross profit | $ | 1,002,000 | ||||
| Selling expenses: | ||||||
| Sales commissions (all variable) | $ | 167,400 | ||||
| Rent (all fixed) | 40,000 | |||||
| Insurance (all short-term fixed) | 30,000 | |||||
| General expenses: | ||||||
| Salaries (all short-term fixed) | 92,000 | |||||
| Rent (all short-term fixed) | 77,000 | |||||
| Depreciation (all short-term fixed) | 50,000 | 456,400 | ||||
| Operating income | $ | 545,600 | ||||
Required:
1. During the year, the company manufactured and sold 55,000 units of product. Prepare a flexible budget for this level of output.
2. Now suppose that the actual level of output was 65,000 units. Prepare a flexible budget for this output level.
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