Kevin Couriers Company prepared the following static budget for the year: $$\begin{array} { | l | r | r | }
\hline \text { Static Budget } & & \
\hline \text { Units/Volume } & & 5,000 \
\hline \text { Sales Revenue } & \text { Per Unit } & \
\hline \text { Variable Costs } & \$ 7.00 & \$ 35,000 \
\hline \text { Contribution Margin } & 1.00 & \underline { 5,000 } \
\hline \text { Fixed Costs } & & 30,000 \
\hline \text { Operating Income/(Loss) } & & \$ , \$ 27,000 \
\hline
\end{array}$$ If a flexible budget is prepared at a volume of 7,800,calculate the amount of operating income.The production level is within the relevant range.
A)$43,800
B)$27,000
C)$7,800
D)$3,000

Question

Kevin Couriers Company prepared the following static budget for the year: $$\begin{array} { | l | r | r | } 
\hline \text { Static Budget } & & \
\hline \text { Units/Volume } & & 5,000 \
\hline \text { Sales Revenue } & \text { Per Unit } & \
\hline \text { Variable Costs } & \$ 7.00 & \$ 35,000 \
\hline \text { Contribution Margin } & 1.00 & \underline { 5,000 } \
\hline \text { Fixed Costs } & & 30,000 \
\hline \text { Operating Income/(Loss) } & & \$ , \$ 27,000 \
\hline
\end{array}$$ If a flexible budget is prepared at a volume of 7,800,calculate the amount of operating income.The production level is within the relevant range.
A)$43,800
B)$27,000
C)$7,800
D)$3,000

Quizplus · Accepted Answer

The correct answer is A.The flexible budget is prepared at a volume of 7,800 units. The variable cost per unit is $1.00. Therefore, the total variable cost is $7,800 x $1.00 = $7,800. The contribution margin per unit is $7.00 - $1.00 = $6.00. Therefore, the total contribution margin is $7,800 x $6.00 = $46,800. The fixed costs are $27,000. Therefore, the operating income is $46,800 - $27,000 = $19,800.

Kevin Couriers Company Prepared the Following Static Budget for the Year