Menson Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During December, the company budgeted for 5,800 units, but its actual level of activity was 5,830 units. The company has provided the following data concerning the formulas to be used in its budgeting:
-The net operating income in the planning budget for December would be closest to:
A) $19,788
B) $24,979
C) $19,380
D) $25,238

Question

Menson Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During December, the company budgeted for 5,800 units, but its actual level of activity was 5,830 units. The company has provided the following data concerning the formulas to be used in its budgeting: 
-The net operating income in the planning budget for December would be closest to:
A) $19,788 
B) $24,979 
C) $19,380 
D) $25,238

Quizplus · Accepted Answer

Using the formula provided in the table, the net operating income in the planning budget for December would be:
$49,800 + ($6.20 × 5,800) - ($3.80 × 5,800) - ($1.50 × 5,800)
= $49,800 + $35,960 - $22,040 - $8,700
= $54,020 - $30,740
= $23,280
This is the net operating income at the planned level of activity. To find the net operating income at the actual level of activity, we need to adjust for the difference between the two levels:
$23,280 + ($6.20 × 30) - ($3.80 × 30) - ($1.50 × 30)
= $23,280 + $186 - $114 - $45
= $23,307
Therefore, the net operating income in the planning budget for December would be closest to $19,380. (Option C)

Menson Corporation Manufactures and Sells a Single Product