A company's master budget for October is to manufacture and sell 30,000 units, for a total sales revenue of $270,000, total variable costs of $180,000, and total fixed costs of $24,000. The company actually manufactured and sold 32,000 units, and generated $45,000 of operating income in October.

The flexible-budget operating income in October, to the nearest dollar, was:
A) $27,000.
B) $70,400.
C) $72,000.
D) $83,520.
E) $86,400.

Question

A company's master budget for October is to manufacture and sell 30,000 units, for a total sales revenue of $270,000, total variable costs of $180,000, and total fixed costs of $24,000. The company actually manufactured and sold 32,000 units, and generated $45,000 of operating income in October.

The flexible-budget operating income in October, to the nearest dollar, was:

The flexible-budget operating income in October, to the nearest dollar, was:
A) $27,000.
B) $70,400.
C) $72,000.
D) $83,520.
E) $86,400.

Quizplus · Accepted Answer

The flexible budget adjusts the master budget for the actual level of activity. For 32,000 units, sales revenue would be $288,000 (32,000 units x $9 per unit), variable costs would be $192,000 (32,000 units x $6 per unit), and fixed costs remain $24,000. Thus, the flexible-budget operating income is $288,000 - $192,000 - $24,000 = $72,000.

A Company's Master Budget for October Is to Manufacture and Sell