Engineworks Co Required:
Prepare a Flexible Budget Performance Report for the Year

question 36

Essay

Engineworks Co. provides the following fixed budget data for the year: $\begin{array}{llcc} \text { Sales (20,000 units)......................... } &&\$600,000\\ \text { Cost of sales:} &\\ \text { Direct materials............................... } &\$200,000\\ \text { Direct labor......................................} &160,000\\ \text { Variable overhead............................} &60,000\\ \text {Fixed overhead.................................. } &\underline{80,000}&\underline{500,000}\\ \text {Gross profit....................................... } &&\$100,000\\ \text {Operating expenses: } &\\ \text { Fixed...............................................} &\$12,000\\ \text { Variable.......................................... } &\underline{40,000}&\underline{\$52,000}\\ \text { Income from operations.................. } &&\underline{\$48,000}\\\\\end{array}$

$\begin{array}{llcc} \text { The company's actual activity for the year follows:} &\\ \text { Sales (21,000 units)....................... } &&\$651,000\\ \text { Cost of goods sold: } &\\ \text { Direct materials............................ } &\$231,000\\ \text { Direct labor.................................. } &168,000\\ \text { Variable overhead......................... } &73,500\\ \text { Fixed overhead............................. } &\underline{77,500}&\underline{550,000}\\ \text { Gross profit.................................. } &&\$101,000\\ \text { Operating expenses:} &\\ \text { Fixed............................................. } &12,000\\\\ \text { Variable......................................... } &\underline{39,500}&\underline{51,500}\\ \text { Income from operations.................. } &&\underline{\$49,500}\\\end{array}$
Required:
Prepare a flexible budget performance report for the year using the contribution margin format.

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Definitions:

Consumption

The process by which goods and services are used up by consumers, representing the end phase of the economic cycle.

Income

Financial gains, customarily on a constant basis, from vocational activities or investments.

Interest Rate

The percentage charged on a sum of money borrowed or earned on deposited funds over a period of time.

Utility Function

A representation in economics that shows the relationship between the utility (satisfaction) individuals receive from consuming goods and services and different consumption bundles.