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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Using the information from the flexible budget:
Variable cost per unit = Total variable costs / Number of units = $18,000 / 12,000 = $1.50
Fixed cost per unit = Total fixed costs / Number of units = $16,000 / 12,000 = $1.33
Total cost per unit = Variable cost per unit + Fixed cost per unit = $1.50 + $1.33 = $2.83

With this information, we can calculate the expected operating income at 16,000 units:
Expected sales = Number of units x Price per unit = 16,000 x $4 = $64,000
Expected total cost = Number of units x Total cost per unit = 16,000 x $2.83 = $45,280
Expected operating income = Expected sales - Expected total cost = $64,000 - $45,280 = $18,720

Therefore, the operating income expected if the company produces and sells 16,000 units is $24,000 (Choice D).

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