Crane Corporation's master (static) budget for the year is shown below :
Sales (61,800 units) $ 2,163,000
Cost of goods sold: Direct materials $ 185,400 Direct labor 488,220 Overhead (variable overhead applied at 40% of direct labor cost) 258,000 931,620
Gross profit $ 1,231,380
Selling expenses: Sales commissions (all variable) $ 168,096 Rent (all fixed) 58,000 Insurance (all fixed) 48,000 General expenses: Salaries (all fixed) 101,000 Rent (all fixed) 86,000 Depreciation (all fixed) 68,000 529,096
Operating income $ 702,284
1. During the year, the company manufactured and sold 56,800 units of product. Prepare a flexible budget for this level of output.
2. Now suppose, that the actual level of output was 66,800 units. Prepare a flexible budget for this level of output.
Budgets
Budgets are an important aspect of the strategic management function of an enterprise in that budgets set goals and expectations for an upcoming time frame. Budgets must be compared to actual results to test the viability and efficiency of projections.