Reference no: EM132514311

Use the following data to create a planned operating budget for Hi-Lo Company for the year ending December 31, 2019:

Plant capacity                                          100,000 units
Expected sales volume                                 90,000 units
Expected production                                    90,000 units
Actual production                                        90,000 units
Forecasted selling price                                 $12.00 per unit
Actual selling price                                       $13.50 per unit

Manufacturing costs:
Variable (per unit):

Direct materials                                                $3.60
Direct labor                                                    $1.50
Manufacturing overhead                                  $2.25
Fixed manufacturing overhead                          $108,000

Selling and administrative expenses:

Variable (per unit)                                            $1.20
Fixed                                                            $60,000

Assume no beginning or ending inventory. Federal income taxes are budgeted at 40% of income before federal income taxes.

The actual operating data for the year ending December 31, 2019, follow:

Sales                                                $1,080,000
Cost of goods sold:
Direct materials                                    $ 337,500
Direct labor                                           135,000
Variable manufacturing overhead                   202,500
Fixed manufacturing overhead                     108,000
Total                                                    $ 783,000
Less: Ending inventory ($783,000 * 10/90)      87,000
                                                                  696,000
Gross margin                                                 $384,000

Question a. Create a planned operating budget for the year ended December 31, 2019, for part (1).

Question b. Using a flexible operating budget, compare expected amounts versus actual.

Question c. Using the report created in part b., analyze the efficiency of operations and comment on the company's sales and production policies for part (2).