Question

lemon company has a master budget for an output of 20,000 units and wants to create a flexible budget for 25,000 units. the following information pertains to the master budget: sales of $220,000 variable costs of $50,000 fixed costs of $75,000 what would be the operating income for the flexible budget of 25,000 units?

Answer 1

The operating income for the flexible budget of 25,000 units would be $137,500.

Step-by-step explanation:

To determine the operating income for the flexible budget of 25,000 units, we need to calculate the variable costs and the sales revenue for this level of output. Since the fixed costs remain the same, we only need to consider the changes in variable costs and sales revenue.

For the master budget of 20,000 units, the variable costs are $50,000. To find the variable costs per unit, we divide $50,000 by 20,000 units, which gives us $2.50 per unit. Multiplying this by 25,000 units gives us total variable costs of $62,500 for the flexible budget.

The sales for the master budget are $220,000. To find the sales revenue per unit, we divide $220,000 by 20,000 units, which gives us $11 per unit. Multiplying this by 25,000 units gives us total sales revenue of $275,000 for the flexible budget.

To calculate the operating income, we subtract the total variable costs ($62,500) and the fixed costs ($75,000) from the total sales revenue ($275,000). The operating income for the flexible budget of 25,000 units is $137,500.