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Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound area. The company’s planning budget for May appears below: Puget Sound Divers Planning Budget For the Month Ended May 31 Budgeted diving-hours (q) 350 Revenue ($450.00q) $ 157,500 Expenses: Wages and salaries ($11,500 + $124.00q) 54,900 Supplies ($4.00q) 1,400 Equipment rental ($2,500 + $23.00q) 10,550 Insurance ($3,800) 3,800 Miscellaneous ($510 + $1.46q) 1,021 Total expense 71,671 Net operating income $ 85,829 During May, the company’s actual activity was 340 diving-hours. Required: Prepare a flexible budget for May

Answer :

Answer:

Flexible Budget for May                    Value                          Percentage of sales

Sales Revenue 340 hours           450 X 340 = $153,000

Wages and salaries  $11,500 + ($124 X 340) = $53,660               35.07%

Supplies                                          $4 X 340  = $1,360                    0.88%

Equipment rental      $2,500 + ($23 X 340)   = $10,320                6.745%

Insurance                                          $3,800   =  $3,800                  2.48%

Miscellaneous              $510 + (1.46 X 340)    = $1,006.4                 0.657%

Total Expense                                                  = $70,146.4                45.85%                                        

Net Operating Income                                    = $82,853.6              54.153        

In a flexible budget all items are shown as a percentage of total revenue (Sales). Further the budget is adjusted based on sales level, where all variable expenses are proportionate to sales.

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