Kern Company prepared the following tentative budget for next year:
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

Kern Company prepared the following tentative budget for next year: 
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?

Quizplus · Accepted Answer

By increasing the unit selling price by 20%, the new price would be $3 per unit. With an expected volume decrease of only 10%, the total units sold would be 90,000 (100,000 * 0.9). Therefore, the total revenue would be $270,000 (90,000 * $3). Subtracting the total variable cost of $150,000 from the total revenue gives a budgeted operating income of $120,000 ($270,000 - $150,000).

Kern Company Prepared the Following Tentative Budget for Next Year