A company's flexible budget for 15,000 units of production showed sales of $48,000, variable costs of $18,000, and fixed costs of $12,000. The operating income in the master budget for 20,000 units, to the nearest dollar, would be:

Question

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First, we need to calculate the contribution margin per unit which is equal to sales revenue per unit minus variable costs per unit.

Contribution margin per unit = ($48,000/15,000) - ($18,000/15,000) = $2.

Then, we can use the contribution margin per unit to calculate the total contribution margin for the 20,000 units in the master budget:

Total contribution margin = $2 x 20,000 = $40,000.

Next, we can calculate the total fixed costs which will remain the same as in the flexible budget:

Total fixed costs = $12,000.

Finally, we can use the total contribution margin and total fixed costs to calculate the operating income for the 20,000 units:

Operating income = Total contribution margin - Total fixed costs 
= $40,000 - $12,000 
= $28,000.

Therefore, the operating income in the master budget for 20,000 units is $28,000, which is closest to choice letter D.

A Company's Flexible Budget for 15,000 Units of Production Showed