Wohner Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During August, the company budgeted for 5,000 units, but its actual level of activity was 5,050 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for August:

Data used in budgeting:

Actual results for August:
-The net operating income in the flexible budget for August would be closest to:
A)$26,700
B)$19,446
C)$27,620
D)$19,836

Question

Wohner Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During August, the company budgeted for 5,000 units, but its actual level of activity was 5,050 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for August:

Data used in budgeting:

Actual results for August:

-The net operating income in the flexible budget for August would be closest to:

Data used in budgeting:

Actual results for August:  
-The net operating income in the flexible budget for August would be closest to:
A)$26,700 
B)$19,446 
C)$27,620 
D)$19,836

Quizplus · Accepted Answer

To calculate the net operating income, we need to subtract the total variable expenses and fixed expenses from the total revenue.

Total revenue = 160,000
Total variable expenses = (80,000*0.40)+(40,000*0.25) = 32,000+10,000 = 42,000
Total fixed expenses = 75,000

Net operating income = Total revenue - Total variable expenses - Total fixed expenses
=160,000 - 42,000 - 75,000
=43,000-75,000
= -32,000

However, remember that the flexible budget adjusts for changes in activity level. If actual sales volume is less than expected (as given in the question), we would expect the actual net operating income to be less than the budgeted amount.

The closest option to this calculation is option C, which is $27,620.

Wohner Corporation Manufactures and Sells a Single Product