Question

Brodrix Company expects to produce 20,500 units for the year ending December 31. A flexible budget for 20,500 units of production reflects sales of $533,000; variable costs of $61,500; and fixed costs of $142,000. If the company instead expects to produce and sell 27,600 units for the year, calculate the expected level of income from operations.

Answer 1

At 20,500 units = $329,500

At 27,600 units = $492,800

Step-by-step explanation:

For computing the income from operations, first, we have to determine the selling price per unit and the variable cost per unit which is shown below:

Selling price per unit = Sales ÷ production units

= $533,000 ÷ 20,500 units

= $26

And, variable cost per unit = Variable cost ÷ production units

= $61,500 ÷ 20,500 units

= $3

At 20,500 units, the income from operations would be

= Sales - variable cost - fixed cost

= $533,000 - $61,500 - $142,000

= $329,500

At 27,600 units, the income from operations would be

= Sales - variable cost - fixed cost

= $717,600 - $82,800 - $142,000

= $492,800

The sales would be = 27,600 × $26 = $717,600

And, the variable cost = 27,600 × $3 = $82,800