he following static budget is provided: Units 22,000 Units Sales $ 220,000 Less variable costs: Manufacturing costs $ 77,000 Selling and administrative costs $ 44,000 Contribution margin $ 99,000 Less fixed costs: Manufacturing costs $ 30,800 Selling and administrative costs $ 18,700 Net income $ 49,500 What will budgeted net income equal if 20,000 units are produced and sold?

Net income = $ 40,500 (assuming fixed costs remain constant)

Net income = $ 45,000 when fixed costs do not remain constant.

Explanation:

We calculate the unit price by dividing the total cost by the number of units.

Units 22,000

Units Sales $ 220,000 / 22,000 = $ 10

Less variable costs:

Manufacturing costs $ 77,000 / 22,000 = $3.5

Selling and administrative costs $ 44,000 / 22,000 = $2

Contribution margin $ 99,000

Less fixed costs:

Manufacturing costs $ 30,800

Selling and administrative costs $ 18,700

Net income $ 49,500

We apply the unit costs to the number of units given to get the net income for 20,000 units.

Units 20,000

Units Sales $ 10*20,000 = $ 200,000

Less variable costs:

Manufacturing costs $3.5*20,000 = $ 70,000

Selling and administrative costs $2*20,000 = $ 40,000

Contribution margin $ 90,000

Less fixed costs:

Manufacturing costs $ 30,800 (assuming fixed costs remain constant)

Selling and administrative costs $ 18,700 (assuming fixed costs remain constant)

Net income $ 40,500

When fixed costs also change.

Units 20,000

Units Sales $ 10*20,000 = $ 200,000

Less variable costs:

Manufacturing costs $3.5*20,000 = $ 70,000

Selling and administrative costs $2*20,000 = $ 40,000

Contribution margin $ 90,000

Less fixed costs:

Manufacturing costs ($ 30,800 / 22,000) * 20,000 = 28,000

Selling and administrative costs ($ 18,700 / 22,000) * 20,000 = 17,000

Net income $ 45,000