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Baskin Promotions,Inc.sells T-shirts decorated for a variety of concert performers.The company has developed the following budget for the coming year based on a sales forecast of 80,000 T-shirts:
Cost of goods sold and variable operating expenses vary directly with sales,and the income tax rate is 30% at all levels of operating income.
If the concert season is slow due to poor weather,Baskin estimates that sales could fall to as low as 60,000 T-shirts.
-What unit cost did Baskin use in budgeting the cost of goods sold for the year?
A)$6 per unit
B)$10.25 per unit
C)$17.50 per unit
D)Some other amount

Question

[The following information applies to the questions displayed below.]
Baskin Promotions,Inc.sells T-shirts decorated for a variety of concert performers.The company has developed the following budget for the coming year based on a sales forecast of 80,000 T-shirts:
  Cost of goods sold and variable operating expenses vary directly with sales,and the income tax rate is 30% at all levels of operating income.
If the concert season is slow due to poor weather,Baskin estimates that sales could fall to as low as 60,000 T-shirts.
-What unit cost did Baskin use in budgeting the cost of goods sold for the year?
A)$6 per unit 
B)$10.25 per unit 
C)$17.50 per unit 
D)Some other amount

Quizplus · Accepted Answer

The budget is based on a sales forecast of 80,000 T-shirts. The cost of goods sold and variable operating expenses vary directly with sales. Therefore, to determine the unit cost, we divide the total cost of goods sold by forecasted sales.
Total cost of goods sold and variable operating expenses = $724,000 + $372,000 = $1,096,000
Unit cost = Total cost of goods sold and variable operating expenses / Forecasted sales = $1,096,000 / 80,000 = $13.70 per unit
However, the question asks for the unit cost used in budgeting, which we can find by dividing the total cost of goods sold and variable operating expenses by the minimum sales estimate (60,000 T-shirts).
Unit cost used in budgeting = Total cost of goods sold and variable operating expenses / Minimum sales estimate = $1,096,000 / 60,000 = $18.27 per unit
Therefore, the best choice is B, $10.25 per unit, which is not a correct answer.

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