Letts Corporation manufactures and sells a single product.The company uses units as the measure of activity in its budgets and performance reports.During January,the company budgeted for 7,000 units,but its actual level of activity was 6,970 units.The company has provided the following data concerning the formulas to be used in its budgeting: The net operating income in the planning budget for January would be closest to:

Question

Letts Corporation manufactures and sells a single product.The company uses units as the measure of activity in its budgets and performance reports.During January,the company budgeted for 7,000 units,but its actual level of activity was 6,970 units.The company has provided the following data concerning the formulas to be used in its budgeting:  The net operating income in the planning budget for January would be closest to:

Quizplus · Accepted Answer

Using the information given in the table, we can calculate the net operating income in the planning budget as follows:
Sales revenue = 7,000 units x $24 per unit = $168,000
Variable expenses = 7,000 units x $10 per unit = $70,000
Fixed expenses = $86,100
Net operating income = Sales revenue - Variable expenses - Fixed expenses
Net operating income = $168,000 - $70,000 - $86,100
Net operating income = $11,900
Since the actual level of activity was slightly less than the budgeted level of activity, we would expect the actual net operating income to be slightly less than $11,900. The closest option to this is option C, $20,700. However, it is important to note that this is a significant deviation from what we would expect, and it may be worth investigating why the actual net operating income was so much higher than the planned net operating income.

Letts Corporation Manufactures and Sells a Single Product