Outdoor Creations sells its patio heaters for $300 each.Its variable cost is $220 per heater.Fixed costs are $40,000 per month for volumes up to 1,000 heaters.Above 1,000 heaters,monthly fixed costs are $62,000.What is the budgeted operating income at a level of 800 patio heaters per month?

Question

Quizplus · Accepted Answer

At a level of 800 patio heaters per month, the total cost incurred by Outdoor Creations would be:

Variable cost per heater * number of heaters = $220 * 800 = $176,000

Since the volume is up to 1,000 heaters, the fixed cost for Outdoor Creations would be $40,000.

Therefore, the total cost would be:

Fixed cost + variable cost = $40,000 + $176,000 = $216,000

The revenue generated by selling 800 patio heaters would be:

Sales price per heater * number of heaters = $300 * 800 = $240,000

Hence, the budgeted operating income at a level of 800 patio heaters per month can be calculated as:

Operating income = Revenue - Total Cost = $240,000 - $216,000 = $24,000

Therefore, the correct answer is option C.

Outdoor Creations Sells Its Patio Heaters for $300 Each