(TCO 2) Katie Enterprises reports the year-end information from 20X8 as follows:
ID: 2377837 • Letter: #
Question
(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)
Explanation / Answer
Price per unit = 560000/70000= $8
Cost per unit = 210000/70000 = $3
New sales volume = 70000*(1-10%)=63000
new selling price =8*(1+4%) = $8.32
budgeted operating income for 20X2 = 8.32*63000- 3*63000-200000=$135,160
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