Question

Reflector Glass Company prepared the following static budget for the​ year:

Static Budget
​Units/Volume		6 comma 0006,000
	Per Unit
Sales Revenue	$ 5.00$5.00	$ 30 comma 000$30,000
Variable Costs	1.501.50	9 comma 0009,000
Contribution Margin		21 comma 00021,000
Fixed Costs		4 comma 0004,000
Operating​ Income/(Loss)		$ 17 comma 000$17,000

If a flexible budget is prepared at a volume of

8 comma 9008,900

​units, calculate the amount of operating income. The production level is within the relevant range.

A.

$ 4 comma 000$4,000

B.

$ 17 comma 000$17,000

C.

$ 13 comma 350$13,350

D.

$ 27 comma 150$27,150

Answer 1

NOTE:Variable costs per unit and total fixed cost do not change with change in units.

Hence Contribution Margin per unit=$21000/6000 units=$3.5/unit

Hence total Contribution Margin for 8900 units=(8900*3.5)=$31150

Less:Fixed Costs=($4000)

Operating income is equal to $27150.(D).