Outdoor Outfitters has created a flexible budget for the 70,000-unit and the 80,

Question

Outdoor Outfitters has created a flexible budget for the 70,000-unit and the 80,000-unit levels of activity shown as follows. Complete Outdoor Outfitters's flexible budget at the 106,000-unit level of activity. Assume that the cost of goods sold and variable operating expenses vary directly with sales and that income taxes remain at 30 percent of operating income.

70,000 Units 80,000 Units 106,000 Units Sales $1,400,000 $1,600,000 Cost of goods sold 840,000 960,000 Gross profit on sales $560,000 $640,000 Operating expenses ($90,000 fixed) 370,000 410,000 Operating income $190,000 $230,000 Income taxes (30% of operating income) 57,000 69,000 Net income $133,000 $161,000

Explanation / Answer

Note

1. Sale = $1,400,000/70,000 =$20 per unit
= $1,600,000/80,000 =$20 per unit

106000 units = 106000 units x $20 = $2,120,000

2. Cost of goods sold = $840,000/70,000 =$12 per unit
= $960,000/80,000 =$12 per unit

106000 units = 106000 units x $12 = $1,272,000

3. Operating expense = ($370,000 - $90,000)/70,000 =$4 per unit
= ($410,000 - $90,000)/80,000 =$4 per unit

106000 units = (106000 units x $4) + $90,000 = $514,000

70,000 Units 80,000 Units 106,000 Units Sales $1,400,000 $1,600,000 $2,120,000 Cost of goods sold 840,000 960,000 1,272,000 Gross profit on sales $560,000 $640,000 $848,000 Operating expenses ($90,000 fixed) 370,000 410,000 514,000 Operating income $190,000 $230,000 $334,000 Income taxes (30% of operating income) 57,000 69,000 100,200 Net income $133,000 $161,000 $233,800

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