Question

Wreath Company expects to sell 700 wreaths in December 2018 ​, but wants to plan for 225 more and 100 less than expected. The wreaths sell for $12 each and have variable costs of $2.00 each. Fixed costs are expected to be $500 for the month.

Requried:

Prepare a flexible budget for 500, 600, and 700 wreaths.

Answer 1

The student's question involved preparing a flexible budget for wreaths at different sales volumes, accounting for fixed and variable costs. Calculations were made to show total revenue, variable costs, total cost, and profit for 500, 600, and 700 wreaths sold at a price of $12 each, with variable costs of $2 per wreath and fixed costs of $500.

Step-by-step explanation:

The student is asking for help in preparing a flexible budget for different levels of sales volume for a company that sells wreaths. The wreaths have a sales price of $12 each and variable costs of $2 each. Additionally, the company has fixed costs of $500.

To create the flexible budget for 500, 600, and 700 wreaths, we consider the following calculations for each scenario:

• Total Revenue = Number of wreaths × Selling price per wreath
• Total Variable Costs = Number of wreaths × Variable cost per wreath
• Total Cost = Total Variable Costs + Fixed Costs
• Profit = Total Revenue - Total Cost

Here is the flexible budget for each level:

Wreaths SoldTotal RevenueTotal Variable CostsFixed CostsTotal CostProfit500$6,000$1,000$500$1,500$4,500600$7,200$1,200$500$1,700$5,500700$8,400$1,400$500$1,900$6,500

Remember, the contribution margin per wreath (selling price minus variable cost) helps in assessing how much each unit contributes to covering the fixed costs and generating profit.

Answer 2

The corrected flexible budget for Wreath Company for 500, 600, and 700 wreaths:

For 500 Wreaths:

• Units Sold: 500
• Sales: $6,000 (500 units * $12 per unit)
• Variable Costs: $1,000 (500 units * $2 per unit)
• Fixed Costs: $500
• Total Costs: $1,500 ($1,000 variable + $500 fixed)
• Profit: $4,500 (Sales - Total Costs)

For 600 Wreaths:

• Units Sold: 600
• Sales: $7,200 (600 units * $12 per unit)
• Variable Costs: $1,200 (600 units * $2 per unit)
• Fixed Costs: $500
• Total Costs: $1,700 ($1,200 variable + $500 fixed)
• Profit: $5,500 (Sales - Total Costs)

For 700 Wreaths:

• Units Sold: 700
• Sales: $8,400 (700 units * $12 per unit)
• Variable Costs: $1,400 (700 units * $2 per unit)
• Fixed Costs: $500
• Total Costs: $1,900 ($1,400 variable + $500 fixed)
• Profit: $6,500 (Sales - Total Costs)

These calculations show the sales, costs, and profit for each level of production. The flexible budget adjusts the expected costs and revenue based on the actual sales volume, providing a valuable tool for financial planning and analysis