8. (TCO 2) Katie Enterprises reports the year-end information from 20X8 as follo

Question

8. (TCO 2) Katie Enterprises reports the year-end information from 20X8 as follows: Sales (70,000 units) $560,000; Cost of goods sold 210,000; Gross margin 350,000; Operating expenses 200,000; Operating income $150,000. Katie is developing the 20X2 budget. In 20X2, the company would like to increase selling prices by 4%, and as a result expects a decrease in sales volume of 10%. All other operating expenses are expected to remain constant. Assume that COGS is a variable cost and that operating expenses are a fixed cost. What is budgeted operating income for 20X2? (Points : 3)
$135,160
$145,160
$125,160
$130,160

Explanation / Answer

At present, selling price per unit = 560000/70000 = $8 New selling price = 8 x 1.04 = $8.32 New sales volume = 70000 x 0.9 = $63000 Budgeted sales = 8.32 x 63000 = $524160 Hope this helps!

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