Infinity Clock Company prepared the following static budget for the year: If a flexible budget is prepared at a volume of 7800 units,calculate the amount of operating income.The production level is within the relevant range.

Question

Infinity Clock Company prepared the following static budget for the year:  If a flexible budget is prepared at a volume of 7800 units,calculate the amount of operating income.The production level is within the relevant range.

Quizplus · Accepted Answer

To calculate the flexible budget at 7800 units, we need to adjust the static budget for the change in activity level. Using the formula:

Flexible Budget = Static Budget x (Actual Activity Level / Budgeted Activity Level)

We can calculate the flexible budget as follows:

Flexible Budget = $63,000 x (7800/9000) = $54,600

To calculate the operating income, we need to subtract the total variable costs and fixed costs from the flexible budget. Using the information provided in the static budget, we can calculate the variable and fixed costs as follows:

Variable Costs = ($9.50 x 7800) = $74,100
Fixed Costs = $23,500

Operating Income = Flexible Budget - Variable Costs - Fixed Costs
Operating Income = $54,600 - $74,100 - $23,500
Operating Income = -$43,000

Since the operating income is negative, we know that the actual operating income at 7800 units must be lower than the flexible budget. However, the answer choices only include positive numbers, so we need to select the closest option. The answer choice that is closest to the actual operating income is A) $43,800, which is the closest positive number to the actual operating income of -$43,000. Therefore, the correct answer is A.

Infinity Clock Company Prepared the Following Static Budget for the Year