[The following information applies to the questions displayed below.] Baskin Pro

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[The following information applies to the questions displayed below.]

Baskin Promotions, Inc. sells T-shirts decorated for a variety of concert performers. The company has developed the following budget for the coming year based on a sales forecast of 88,000 T-shirts:

   

Cost of goods sold and variable operating expenses vary directly with sales, and the income tax rate is 30% at all levels of operating income.

If the concert season is slow due to poor weather, Baskin estimates that sales could fall to as low as 68,000 T-shirts.

n a flexible budget for sales of 68,000 T-shirts, how much would Baskin budget for operating expenses?

Sales $ 1,547,040 Cost of Goods Sold 909,040 Gross Profit 638,000 Operating Expenses ($100,000 is fixed) 450,240 Operating Income 187,760 Income Taxes (30% of operating income) 56,328 Net Income $ 131,432

Explanation / Answer

Ans. Statement showing Flexible Budget for 68,000 T-Shirts: Pariulars Amt.($) Amt.($) Sales (1,547,040/88,000) x 68,000 1195440 Less: Cost of goods sold (909,040/1,547,040) x 1,195,000 702440 Gross Profit 493000 Less: Operating expenses      Variable (350,240/1,547,040) x 1,195,440 270640      Fixed 100000 370640 Operating Income 122360 Less: Income Taxes (30% of Operating Income) 36708 Net Income 85652

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