Question

Question:Garland Company expects to sell 600 wreaths in December 2018, but wants to plan for 100 more and 100 less than expected. The wreaths sell for \(5.00 each and have variable costs of \)2.00 each. Fixed costs are expected to be $500 for the month. Prepare a flexible budget for 500, 600, and 700 wreaths.

Short answer

Answer

The flexible budget is prepared for the quantities 500, 600, and 700 units with operating income of $1,000, $1,300, and $1,600 respectively.

Step-by-step solution

Definition of variable costs

The variable costs are defined as the cost incurred by the company which changes with the change in volume of sales or the production.

Computation of direct material efficiency variance

Garland Company
Flexible Budget
For the month Ended December 31, 2018
UNITS	Budget amount per unit ($)	500 ($)	600 ($)	700 ($)
Sales Revenue	5.00	$2,500	$3,000	$3,500
Variable costs	2.00	1,000	1,200	1,400
Contribution Margin		1,500	1,800	2,100
Fixed cost		500	500	500
Operating Income		1,000	1,300	1,600