Question

Barnes Corporation expected to sell 150,000 board games during the month of November, and the company’s master budget contained the following data related to the sale and production of these games:_______.Revenue $2,400,000Cost of goods sold:Direct materials $675,000Direct labor $300,000Variable Overhead $450,000Contribution Margin $975,000Fixed overhead $250,000Fixed selling and administration $500,000Operating income $225,000Actual sales during November were 180,000 games. Using a flexible budget, the company expects the operating income for the month of November to be:_____.A) $225,000B) $270,000C) $420,000D) $510,000

Answer 1

C) $420,000

Step-by-step explanation:

Barnes Corporation

Master budget Flexible budget

150,000 games 180,000 games

Revenue $2,400,000 $2,880,000

Cost of goods sold:

Direct materials $675,000 $810,000

Direct labor $300,000 $360,000

Variable Overhead $450,000 $540,000

Contribution Margin $975,000 $ 1170,000

Fixed overhead $250,000 $ 250,000

Fixed selling and administration $500,000 $500,000

Operating income $225,000 $420,000

We calculate each term by dividing the cost by 150,000 units and multiplying the unit cost with the actual units 180,000. It is assumed that the fixed costs remain constant for the range of units from 150,000 - 200,000.

This gives an operating income of $ 420,000