A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The operating income expected if the company produces and sells 16,000 units is:

Question

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First, we need to find the contribution margin per unit:
Contribution Margin = Sales - Variable Costs 
Contribution Margin = $48,000 - $18,000 
Contribution Margin = $30,000 
Contribution Margin per Unit = Contribution Margin / Units 
Contribution Margin per Unit = $30,000 / 12,000 
Contribution Margin per Unit = $2.50

Next, we can use the contribution margin approach to find the operating income at 16,000 units of production: 
Operating Income = (Contribution Margin per Unit x Units) - Fixed Costs 
Operating Income = ($2.50 x 16,000) - $16,000 
Operating Income = $24,000

Therefore, the operating income expected if the company produces and sells 16,000 units is $24,000, which corresponds to choice D.

A Company's Flexible Budget for 12,000 Units of Production Showed