Question

A company’s flexible budget for 16,000 units of production showed sales, $48,000; variable costs, $24,000; and fixed costs, $17,000. The operating income expected if the company produces and sells 17,000 units is: Multiple Choice $ 7,000. $44,000. $5,000. $8,500. $22,000.

Answer 1

Answer:

The correct answer is $8,500

Explanation:

Total sales $48,000 with 16,000 units

Variable cost $24,000

Fixed cost  $17,000

First we need to know the variable cost per unit.

$24,000(variable cost) / 16,000 (units sold) = $1.5 (variable cost per unit)

Then we need to know the price of each article

48,000 (total sales) / 16,000 (units)= $3 (sells price per unit)

Then we replace at the formula "production cost"

(units to sell "if the company produces and sells"  *  variable cost per unit) + fixed cost = Production cost (for the units produced. if the units change, the production cost change too)

$17,000(units to produce and sell)* 1.5 variable cost per unit =25,500/ 17,000(fixed cost) = $42,500 Production cost.

Finally the question says: "if the company produce and sells"

So we need to know the total amount in dollars that we receive for the products.

$3 (sells price per unit) * 17,000 (new units sold) = $51,000 money received  

Operating income if the company produces and sells 17,000

$51,000 (money received) - $42,500 (production cost for the 17,000 units) = $8,500