Question

A company provided the following budgeted data.

Revenues $10,000,000

Variable Costs $7,000,000

Fixed Costs $2,000,000

Compute the budgeted operating income for each of the following changes from the original budgeted data.

A. A 20% increase in units sold

B. A 5% decrease in units sold

C. A 15% increase in fixed costs

Answer 1

To calculate the budgeted operating income, consider the changes in units sold and fixed costs individually. For each scenario, calculate the new revenue and variable costs, and subtract the new costs from the new revenue to find the budgeted operating income.

Step-by-step explanation:

To calculate the budgeted operating income, we need to consider the changes in units sold and fixed costs individually.

A. For a 20% increase in units sold, we can calculate the new revenue by multiplying the original revenue by 1.2. The new variable costs will also increase by 20%, which can be calculated by multiplying the original variable costs by 1.2. Subtract the new variable costs and fixed costs from the new revenue to find the budgeted operating income.

B. For a 5% decrease in units sold, follow the same steps as above but multiply the original revenue and variable costs by 0.95. Subtract the new variable costs and fixed costs from the new revenue to find the budgeted operating income.

C. For a 15% increase in fixed costs, add 15% of the original fixed costs to the fixed costs. Calculate the new revenue and variable costs as shown in part A.