Question

A company's flexible budget for 10,000 units of production reflects sales of $200,000; variable costs of $40,000; and fixed costs of $75,000. Calculate the expected level of operating income if the company produces and sells 13,000 units. Multiple Choice $110,500. $85,000. $133,000. $100,000. $50,500.

Answer 1

Expected level of operating income = $133,000

Step-by-step explanation:

given data

flexible budget = 10,000 units

sales = $200,000

variable costs = $40,000

fixed costs = $75,000

solution

we get here Contribution margin for 10000 units that is express as

Contribution margin = sales - Variable cost ..............1

put here value and we get

Contribution margin = $200,000 - $40,000

Contribution margin = $160,000

and

now we get here Contribution margin expected for 13000 units that is

Contribution margin expected = $160,000 ÷ 10000 × 13000

Contribution margin expected = $208,000

so here Expected level of operating income

Expected level of operating income = Contribution Margin - Fixed costs

Expected level of operating income = $208,000 - $75,000

Expected level of operating income = $133,000