Engineworks Co. provides the following fixed budget data for the year: Sales (20,000 units) ……………………………. $600,000 Cost of sales: Direct materials …………………………….. $200,000 Direct labor ………………………………… 160,000 Variable overhead ………………………….. 60,000 Fixed overhead …………………………….. 80,000 500,000 Gross profit ……………………………………. $100,000 Operating expenses: Fixed ……………………………………….. $12,000 Variable ……………………………………. 40,000 52,000 Income from operations ……………………….. $ 48,000 The company's actual activity for the year follows: Sales (21,000 units) ……………………………. $651,000 Cost of goods sold: Direct materials …………………………….. $231,000 Direct labor ………………………………… 168,000 Variable overhead ………………………….. 73,500 Fixed overhead …………………………….. 77,500 550,000 Gross profit ……………………………………. $101,000 Operating expenses: Fixed ………………………………………. 12,000 Variable ……………………………………. 39,500 51,500 Income from operations ………………………. $ 49,500 Required: Prepare a flexible budget performance report for the year using the contribution margin format. (15 points, please label your answer in the flexible budget format)

Flexible Contribution Margin 147,000

Actual Contribution Margin 139,000

Variance 8000 unfavorable

Explanation:

Engine Works Company

Flexible Budget Performance Report

For the year using the Contribution Margin Format

                                      Actual                      Static                Flexible

                                    (21,000 units)       (20,000 units)     (21,000 units)

Sales                       …$651,000                 $600,00             630,000 Fav

V. Cost of goods sold: 512,000              $ 460,000           483,000 Unfav

Direct materials .$231,000                     $200,000             210,000

Direct labor   168,000                              160,000               168,000

Variable overhead  73,500                       60,000               63,000

Variable Operating Expenses 39,500       40,000             42,000

Contribution Margin    $139,000                140,000          147,000  Unfav

Fixed Expenses

Fixed Operating Expenses 12,000 12000           12000

Fixed overhead 77,500           80,000                  84,000

Income from operations   $ 49,500    $ 48,000            $51,000  Fav

Working

Flexible Calculations = (600,000/20,000)*21,000= $ 630,000

V. Cost of goods sold= ($ 460,000 /20,000)*21,000= 483,000

Direct materials .   =  $200,000 /20,000)*21,000=   210,000

Direct labor =    160,000/20,000)*21,000=    168,000

Variable overhead  =  60,000 /20,000)*21,000=    63,000

Variable Operating Expenses =  40,000 /20,000)*21,000= 42,000

All calculations are carried out in the same way. Dividing the amount in the given budget with the number of units and multiplying it with actual number of units.

Flexible Contribution Margin 147,000 and Actual Contribution Margin 139,000 which shows a Variance  of 8000  which is unfavorable.