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 Outftters's flexible budget at the 98,000-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 98,000 Units $ 1400,000 1,600,000 Sales Cost of goods sold Gross profit on sales Operating expenses (s9o,000 fixed) Operating income Income taxes (30% of operating income) Net income 840,000 960,000 S 560,000 640000 S 370,000 $ 190,000 57,000 410,000 230,000$ 69,000 S 133,000 161,000

Explanation / Answer

Sales price per unit=(1,400,000/70000)=$20 per unit

COGS/unit=(840,000/70,000)=$12 per unit

Variable portion for operating expenses=($370,000-90,000)=$280,000

Hence variable cost/unit for operating expenses=(280,000/70000)=$4

Hence operating expenses=$90000+4x[where x=number of units].

98000 units Sales(20*98000) 1,960,000 COGS(12*98000) 1,176,000 Gross profit on sales 784000 Operating expenses(90000+(4*98000)) 482000 Operating income $302000 Income taxes(30%*302000) $90600 Net income $211400.

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