A company's flexible budget for 12,000 units of production showed per unit contribution margin of $3.00 and fixed costs, $20,000. The operating income expected if the company produces and sells 18,000 units is:

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Business

Kale

9 March, 12:44

A company's flexible budget for 12,000 units of production showed per unit contribution margin of $3.00 and fixed costs, $20,000. The operating income expected if the company produces and sells 18,000 units is:

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Kiera Copeland · Answer 1

The expected income will be 34,000

Explanation:

Flexible budget:

It will change according to the volume or activity. While an static budget don't.

To achieve that, the flexible budget has variable rate per unit of activity instead of one fixed total amount.

In this case, our variable rate is the contribution margin.

Contribution margin per unit $ 3.00

Units produced and sold 18,000

We have to multiply the contribution per unit by our new level of 18,000 units

Then we subtract fixed cost to get net income.

total contribution margin 18,000 x $ 3.00 = 54,000

Fixed Cost (20,000)

expected income 34,000