Ibis Company prepared the following static budget for the month of November, 2015: $$\begin{array} { | l | c | r | }
\hline \text { Static Budget } & & \
\hline \text { Units/volume } & & 12,000 \
\hline & \underline { \text { Per Unit } } & \
\hline \text { Sales revenue } & \$ 20 & \$ 240,000 \
\hline \text { Variable expenses } & \underline { \$ 8 } & \underline { - 96,000 } \
\hline \text { Contribution margin } & & 144,000 \
\hline \text { Fixed expenses } & & \underline { - 130,000 } \
\hline \text { Operating income/(loss) } & & \$ \mathbf { 1 4 , 0 0 0 } \
\hline
\end{array}$$ If a flexible budget was prepared at a volume of 13,000 units, calculate the operating income at 13,000 units of production.
A) $22,000
B) $17,500
C) $14,000
D) $26,000

Question

Ibis Company prepared the following static budget for the month of November, 2015: $$\begin{array} { | l | c | r | } 
\hline \text { Static Budget } & & \
\hline \text { Units/volume } & & 12,000 \
\hline & \underline { \text { Per Unit } } & \
\hline \text { Sales revenue } & \$ 20 & \$ 240,000 \
\hline \text { Variable expenses } & \underline { \$ 8 } & \underline { - 96,000 } \
\hline \text { Contribution margin } & & 144,000 \
\hline \text { Fixed expenses } & & \underline { - 130,000 } \
\hline \text { Operating income/(loss) } & & \$ \mathbf { 1 4 , 0 0 0 } \
\hline
\end{array}$$ If a flexible budget was prepared at a volume of 13,000 units, calculate the operating income at 13,000 units of production.
A) $22,000
B) $17,500
C) $14,000
D) $26,000

Quizplus · Accepted Answer

To prepare a flexible budget for 13,000 units of production, we need to adjust the revenue and variable expenses based on the new volume. The fixed expenses will remain the same as they do not change with changes in the volume.

$$\begin{array} { | l | c | c | r | } 
\hline \text { Flexible Budget } & & & \
\hline \text { Units/volume } & & & 13,000 \
\hline & \underline { \text { Per Unit } }& & \
\hline \text { Sales revenue } & \$ 20 & \times 13,000 & = \$ 260,000 \
\hline \text { Variable expenses } & \$ 8 & \times 13,000 & = - \$104,000 \
\hline \text { Contribution margin } & & & 156,000 \
\hline \text { Fixed expenses } & & & \underline {- 130,000} \
\hline \text { Operating income/(loss) } & & & \$ \mathbf { 26,000 } \
\hline
\end{array}$$

Therefore, the operating income at 13,000 units of production is $26,000, which is option D.

Ibis Company Prepared the Following Static Budget for the Month