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?

O $95.000
O $137.500
O $142,800
O $118.750

Answer 1

The operating income for the flexible budget of 25,000 units is -$62,500.

Step-by-step explanation:

To calculate the operating income for the flexible budget of 25,000 units, we need to adjust the master budget figures proportionally.

First, we need to calculate the variable cost per unit by dividing the total variable costs by the number of units in the master budget: $50,000 / 20,000 units = $2.50 per unit.

Next, we calculate the sales for 25,000 units by multiplying the variable cost per unit by 25,000: $2.50 * 25,000 = $62,500.

We can now calculate the operating income by subtracting the variable costs and fixed costs from the sales: $62,500 - $75,000 - $50,000 = $-62,500.

Therefore, the operating income for the flexible budget of 25,000 units is -$62,500.