Yemesi, Inc.'s budgeted income statement for 2017 follows: $\begin{array}{l}\text { Sales }(80,000 \text { units) }&&\$360,000\\text { Less: }\
\text { Direct materials } & \$ 128,000 \
\text { Direct labor } & 36,000 \
\text { Variable overhead } & 32,000 \
\text { Fixed overhead } & 10,000 \
\text { Fixed selling \& admin expenses } & 12,000&218,000 \
\text { Income before taxes }&&\$142,000
\end{array}$ How much income before taxes would appear on a flexible budget for 84,000 units?

Question

Quizplus · Accepted Answer

To calculate the income before taxes on a flexible budget for 84,000 units, we first need to determine the variable costs per unit and then apply these costs to the new production level. The variable costs include direct materials, direct labor, and variable overhead, totaling $196,000 ($128,000 + $36,000 + $32,000). The cost per unit is $196,000 / 80,000 units = $2.45 per unit. For 84,000 units, the total variable costs would be 84,000 units * $2.45 = $205,800. The fixed costs (fixed overhead and fixed selling & admin expenses) remain unchanged at $22,000 ($10,000 + $12,000). The sales for 84,000 units, assuming the same sales price per unit, would be ($360,000 / 80,000 units) * 84,000 units = $378,000. Therefore, the income before taxes for 84,000 units would be Sales - Variable Costs - Fixed Costs = $378,000 - $205,800 - $22,000 = $150,200.

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