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. PEBCO COMPANY Fixed Budget Report For Year Ended December 31, 2011 Sales $ 3,000,000 Cost of goods sold Direct materials $ 1,200,000 Direct labor 260,000 Machinery repairs (variable cost) 57,000 Depreciation-plant equipment 250,000 Utilities ($50,000 is variable) 200,000 Plant management salaries 140,000 2,107,000 Gross profit 893,000 Selling expenses Packaging 80,000 Shipping 116,000 Sales salary (fixed annual amount) 160,000 356,000 General and administrative expenses Advertising expense 81,000 Salaries 241,000 Entertainment expense 90,000 412,000 Income from operations $ 125,000 QUESTIONS: 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. Prepare flexible budgets for the company at sales volumes of 18,000 and 24,000 units. 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?

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 this level?