Question

Frames, Inc. manufactures, produces, and sells picture frames. The frame sells for $25 and the variable operating costs per unit are $12. The managerial accountant reported fixed costs of $50,000 per month, which produces a sales volume of 25,000 frames. The manager needs to sell 26,000 frames to meet the sales quota and incur no more than $70,000 of fixed costs.
The flexible budget, with a sales volume of 30,000 frames, would show operating income of:
a.$32,000
b.$23,000
c.$230,000
d.$320,000

Answer 1

Answer:

D) $320,000

Explanation:

We are given the following information:

• unit price = $25 per frame
• variable costs = $12 per frame
• fixed costs = $50,000 for 25,000 frames or $2 per frame

If Frames is able to sell 30,000 frames in one month, their operating income should be:

Total sales revenue                $750,000 (= $25 per frame x 30,000 frames)

COGS                                      -$430,000 [= (30,000 x $12) + $70,000]        

Gross operating profit            $320,000