Yemesi, Inc.'s budgeted income statement for 2014 follows: $\begin{array}{lr}\text { Sales ( } 80,000 \text { units) }&&\$360,000\
\text { Less: }\
\text { Direct materials } & \$ 128,000 \
\text { Direct labor } & 36,000 \
\text { Vari able overhead } & 32,000 \
\text { Fixed overhead } & 10,000 \
\text { Fixed selling \& admin expenses } & 12,000&218,000\
\text { Income before taxes }&&\$142,000
\end{array}$ How much income before taxes would appear on a flexible budget for 84,000 units?

Question

Quizplus · Accepted Answer

The correct answer is A because the variable costs will increase with the increase in units, while the fixed costs will remain the same. The variable costs per unit are:Direct materials: $128,000 / 80,000 units = $1.60 per unitDirect labor: $36,000 / 80,000 units = $0.45 per unitVariable overhead: $32,000 / 80,000 units = $0.40 per unitThe total variable cost per unit is $1.60 + $0.45 + $0.40 = $2.45 per unit.The total variable cost for 84,000 units is $2.45 per unit * 84,000 units = $205,800.The fixed costs will remain the same at $10,000 + $12,000 = $22,000.The total cost for 84,000 units is $205,800 + $22,000 = $227,800.The income before taxes for 84,000 units is $360,000 - $227,800 = $150,200.

Yemesi, Inc How Much Income Before Taxes Would Appear on a Flexible