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 96,000-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 96,000 Units Sales $1,400,000 $1,600,000 Cost of goods sold 840,000 960,000 Gross profit on sales $560,000 $640,000 $0 Operating expenses ($90,000 fixed) 370,000 410,000 Operating income $190,000 $230,000 $0 Income taxes (30% of operating income) 57,000 69,000 Net income $133,000 $161,000 $0

Explanation / Answer

Selling price per unit = Sales / Number of units

= 1,400,000 / 70,000

= 20

Cost of goods sold per unit = Cost of goods sold / Number of units

= 840,000 / 70,000

= 12

Gross profit per unit = Selling price per unit - Cost of goods sold per unit

= 20 - 12

= 8

Operating expenses per unit = (410,000 - 370,000) / (80,000 - 70,000)

= 40,000 / 10,000

= 4

Flexible budget

96,000 units Sales (96,000*20) 1,920,000 Cost of goods sold (96,000*12) 1,152,000 Gross profit on sales 768,000 Operating expenses [(96,000*4) + 90,000] 474,000 Operating income 294,000 Income taxes (294,000*30%) 88,200 Net income 205,800

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