Question

A company's flexible budget for 24,000 units of production showed total contribution margin of $93,600 and fixed costs, $31,200. The operating income expected if the company produces and sells 29,000 units is:
a. $81,900.
b. $105,300.
c. $11,700.
d. $62,400.
e. $18,400.

Answer 1

Answer:

a. $81,900.

Explanation:

The contribution margin per unit is obtained by dividing the total contribution margin by the 24,000 units produced.

$CM = \frac{\ 93,600}{24,000} = \ 3.9\ per\ unit$

The expected operating income is given by the contribution margin minus the fixed costs. For 29,000 units sold, the operating income is:

$I = \ 3.9*29,000 - \ 31,200\\I=\ 81,900$

The answer is a. $81,900.