Pebco Company€™s 2011 master budget included the following fixed budget report. It is based on an expected production and sales volume of 20,000 units.

Required
1. Classify all items listed in the fixed budget as variable or fixed. Also determine their amounts per unit or their amounts for the year, as appropriate.
2. Prepare flexible budgets (see Exhibit) for the company at sales volumes of 18,000 and 24,000 units.

3. The company€™s business conditions are improving. One possible result is a sales volume of approximately 28,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2011 budgeted amount of $125,000 if this level is reached without increasing capacity?
4. An unfavorable change in business is remotely possible; in this case, production and sales volume for 2011 could fall to 14,000 units. How much income (or loss) from operations would occur if sales volume falls to thislevel?

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PEBCO COMPANY Fixod Budgot Report For Year Ended December 31,2011 $3,000.000 Sales.. Cost of goods sold Direct labor.... Machinery repairs (variable cost) Depreciation plant equipment.... $1,200,000 260,000 57,000 250000 200,000 Plant management salarios 140,000 2,107,000 893,000 Selling expenses Packaging 80,000 116.000 Sales salary (fixed annual amount) 160,000 356,000 General and administrative expensers 81,000 Salaries Entertainment expense 241,000 90,000412.000 Income from operations.. 125,000 OPTEL Flexible Budget Performance Roport For Month Ended January 31, 2011 Flexible Actual Budget Results Variances Salee (12,000 units) Variable costs Direct materials.n.000 3000 1,000 U Direct labor Factory supples. Udlies . Sales commissions.. Shipping expenses Office supplies.... Total vartable costs.... 18,000 20,000 2,000 U 2,400 2100 0 F 3,600 4,000 10,800 10,800 4,800 4.300 6,0005200 800 F 57.600 400 U 500 F 59.400 1.800 U 62,400 65,600 3,200 F Fixed costs Depreciation-machinery Supervisory salaries . 8,0008,000 1,000 11,000 1.000 1.200 7,000 7.000 13.000 13,000 40.000 40.200 $ 22.400 $ 25,400 200 U Administrative salaries········ 200 U $3.000 F Total foxed costs... Income from operations