Kern Company prepared the following tentative budget for next year:
$\begin{array}{|l|r|}
\hline \text { Sales } & \$ 500,000 \
\hline \text { Selling price } & \$ 5 \text { per unit } \
\hline \text { Variable expenses } & \$ 300,000 \
\hline \text { Fixed expenses } & \$ 150,000 \
\hline
\end{array}$
The sales manager argues that the unit selling price could be increased by 20%,with an expected volume decrease of only 10%.If Kern incorporates these changes in its budget,what should be the budgeted operating income?

Question

Quizplus · Accepted Answer

The new selling price is $6 per unit ($5 + 20%). The new sales volume is 90,000 units (100,000 units - 10%). Revenue is $540,000 (90,000 units x $6). Variable expenses are $270,000 (90,000 units x $3). Operating income is $120,000 ($540,000 - $270,000 - $150,000).

Kern Company Prepared the Following Tentative Budget for Next Year