Asked by Sydney Horton on Jul 21, 2024
Verified
Based on a predicted level of production and sales of 30,000 units,a company anticipates total contribution margin of $105,000,fixed costs of $40,000,and operating income of $65,000.Based on this information,the budgeted operating income for 28,000 units would be:
A) $52,000.
B) $135,333.
C) $58,000.
D) $72,500.
E) $105,000.
Contribution Margin
The amount by which a product's sales price exceeds its variable costs, contributing to covering fixed costs and generating profit.
Fixed Costs
Expenses that do not change in total despite fluctuations in the level of output or sales volume, such as rent or salaries.
Operating Income
The profit realized from a business's core operations, excluding income from investments and the effects of taxes and interest.
- Familiarize oneself with the idea and analytical processes of operating income across assorted levels of production.
- Investigate the influence of shifts in production amounts on variable and fixed expenditures, as well as income generated from operations.
- Understand and apply the concept of contribution margin in budgeting and its correlation with production levels.
Verified Answer
BS
Brianna SkylarJul 26, 2024
Final Answer :
C
Explanation :
Using the equation formula:
Operating Income = Total Contribution Margin - Fixed Costs
We can solve for the budgeted operating income for 30,000 units:
$65,000 = $105,000 - $40,000
To find the budgeted operating income for 28,000 units, we can use the same formula:
Operating Income = Total Contribution Margin - Fixed Costs
We need to solve for the Total Contribution Margin for 28,000 units:
Total Contribution Margin = Operating Income + Fixed Costs
Total Contribution Margin = $65,000 + $40,000
Total Contribution Margin = $105,000
Now we can use the Total Contribution Margin for 28,000 units and solve for the operating income:
Operating Income = Total Contribution Margin - Fixed Costs
Operating Income = $105,000 - $40,000
Operating Income = $65,000
Therefore, the budgeted operating income for 28,000 units is $65,000.
Operating Income = Total Contribution Margin - Fixed Costs
We can solve for the budgeted operating income for 30,000 units:
$65,000 = $105,000 - $40,000
To find the budgeted operating income for 28,000 units, we can use the same formula:
Operating Income = Total Contribution Margin - Fixed Costs
We need to solve for the Total Contribution Margin for 28,000 units:
Total Contribution Margin = Operating Income + Fixed Costs
Total Contribution Margin = $65,000 + $40,000
Total Contribution Margin = $105,000
Now we can use the Total Contribution Margin for 28,000 units and solve for the operating income:
Operating Income = Total Contribution Margin - Fixed Costs
Operating Income = $105,000 - $40,000
Operating Income = $65,000
Therefore, the budgeted operating income for 28,000 units is $65,000.
Learning Objectives
- Familiarize oneself with the idea and analytical processes of operating income across assorted levels of production.
- Investigate the influence of shifts in production amounts on variable and fixed expenditures, as well as income generated from operations.
- Understand and apply the concept of contribution margin in budgeting and its correlation with production levels.