Question

A company's flexible budget for 12,500 units of production showed sales, $50,000; variable costs, $20,000; and fixed costs, $15,000. The operating income expected if the company produces and sells 15,000 units is:

Answer 1

Answer: $21000

Explanation:

First, we calculate the contribution margin which will be:

=Sales - Variable cost

= $50,000 - $20,000

= $30,000

Therefore, the contribution margin per unit will then be:

= $30,000 / 12500

= $2.4 per unit

The operating income will be the difference between the total contribution margin and the fixed cost. This will be:

The total Contribution margin will be:

= $2.4 × 15000

= $36000

Fixed costs = $15000

Operating income = $36000 - $15000

= $21,000