Ibis Paper Company prepared the following static budget for November: If a flexible budget is prepared at a volume of 13,300 units,calculate the operating income.The production level is within the relevant range.

Question

Ibis Paper Company prepared the following static budget for November:  If a flexible budget is prepared at a volume of 13,300 units,calculate the operating income.The production level is within the relevant range.

Quizplus · Accepted Answer

To prepare the flexible budget, we need to use the same cost per unit amounts as in the static budget and adjust the total amounts for the actual production level.

Flexible budget for 13,300 units:

Variable costs:
Direct materials: (13,300 x $16.50) = $219,450
Direct labor: (13,300 x $12.50) = $166,250
Variable manufacturing overhead: (13,300 x $9) = 119,700
Total variable costs: $505,400

Fixed costs:
Fixed manufacturing overhead: $300,000
Fixed selling and administrative expenses: $45,000
Total fixed costs: $345,000

Total costs: $850,400

Revenue: (13,300 x $100) = $1,330,000

Operating income: $1,330,000 - $850,400 = $479,600

Therefore, the correct answer is D) $159,900.

Ibis Paper Company Prepared the Following Static Budget for November