Big Bend Co Prepare a Flexible Budget for Big Bend Co

question 44

Essay

Big Bend Co.fixed budget for the year is shown below:
$\begin{array}{lr}\text { Sales (50,000units) }&&\$ 1,300,000\\\text { Cost of goods sold: }\\\text { Direct materials } & \$ 150,000 \\\text { Direct labor } & 450,000 \\\text { Overhead (includes } \$ 2 \text { per unit } & \underline { 240,000}& \underline { 840,000}\\ \text { variable overhead) } \\ \text { Gross profit } &&\$ 460,000\\\\\\\text { Selling expenses: }\\\text { Selling expenses: }\\\text { Sales commissions(all variable) } & 60,000 \\\text { Rent (all fixed) } & 40,000 \\\text { Insurance (all fixed) } & 35,000 \\\text { eneral and administrative expenses: } & \\\text { Salaries (all fixed) } & 72,000 \\\text { Rent (all fixed) } & 54,000 \\\text { Depreciation (all fixed) } & \underline {31,000}& \underline { 292,000 }\\\text { Net income from operations }&&\underline { \$ 168,000}\\\end{array}$ Prepare a flexible budget for Big Bend Co.that shows a detailed budget for its actual sales volume of 42,000 units.Use the contribution margin format.

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Definitions:

Fixed Expenses

Costs that do not vary with the level of output or sales, such as rent and salaries.

High-low Method

A technique used in accounting and finance to estimate variable and fixed costs based on the highest and lowest levels of activity.

Monthly Fixed Component

The portion of fixed costs, such as rent or salaries, that does not change with the volume of production or sales in a given month.

Lubrication Cost

The expense associated with maintaining machinery through oiling and greasing to ensure smooth operation.