Ibis Company prepared the following static budget for the coming month:
$\begin{array}{|l|l|r|}
\hline \text { Static Budget } & & \
\hline \text { Units/volume } & & 12,000 \
\hline & \text { Per Unit } & \
\hline \text { Sales revenue } & \$ 20.00 & \$ 240,000 \
\hline \text { Variable expenses } & \$ 9.00 & 108,000 \
\hline \text { Contribution margin } & & 132,000 \
\hline \text { Fixed expenses } & & 130,000 \
\hline \text { Operating income/(1oss) } & & \$ 2,000 \
\hline
\end{array}$
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If a flexible budget was prepared at a volume of 14,000 units, how much would the operating income be?

Question

Quizplus · Accepted Answer

The flexible budget at 14,000 units would adjust variable costs and revenues but keep fixed costs the same. Sales revenue per unit is $20, so for 14,000 units, it's $280,000 (14,000 * $20). Variable expenses are $9 per unit, so for 14,000 units, it's $126,000 (14,000 * $9). The contribution margin is sales revenue minus variable expenses, which is $280,000 - $126,000 = $154,000. Fixed expenses remain at $130,000. Therefore, the operating income is $154,000 - $130,000 = $24,000.

Ibis Company Prepared the Following Static Budget for the Coming