Question

The following static budget is provided: Units 23,000 Units Sales $ 230,000 Less variable costs: Manufacturing costs $ 80,500 Selling and administrative costs $ 55,200 Contribution margin $ 94,300 Less fixed costs: Manufacturing costs $ 32,200 Selling and administrative costs $ 17,250 Net Income $ 44,850 What will budgeted net income equal if 21,000 units are produced and sold?

Answer 1

`\left[\begin{array}{cccc}&unit \: 23,000&unit \: 21,000&Differential\\Sales\: Revenue&230,000&210,000&-20,000\\manufacturing\:cost&-80,500&-73,500&7,000\\SA \: variable&-55,200&-50,400&4,800\\CM&94,300&86,100&-8,200\\Fixed \:M&-32,200&-32,200&0\\Fixed \:SA&-17,250&-17,250&0\\Net \:Income&44,850&36,650&-8,200\\\end{array}\right]`

Step-by-step explanation:

We will divide the variable by 23,000 and multiply by 21,000 to convert them to the new activity level.

Then we calculate the contribution margin.

The fixed cost are keep at the same level.

We subtract the fixed cost from contribution margin giving us the net income.

The Net income will decrease by 8,200