Question

Exercise 6-1 Sheffield Sports sells volleyball kits that it purchases from a sports equipment distributor. The following static budget based on sales of 2,000 kits was prepared for the year. Fixed operating expenses account for 80% of total operating expenses at this level of sales. Sales Revenue $ 100,280 Cost of goods sold (all variable) 60,100 Gross margin 40,180 Operating expenses 35,170 Operating income $ 5,010 Prepare a flexible budget based on sales of 1,494, 2,690, and 3,870 units. (Round unit values to 2 decimal places e.g. 15.25 and all other answers to 0 decimal places, e.g. 145. If operating income is negative, enter amounts using a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Answer 1

• All working forms part of the answer
• Amounts are in $
• Under Flexible budget, it is to e noted that Variable cost changes as the unit changes, while fuxed cost remains the same. Hence, first variable cost per unit and fixed cost is to be calculated.

	Units (A)	Amount (B) -$	per unit (B/A) - $
Sales	2000	100280	$50.14
(-) Cost of Goods Sold	2000	60100	$30.05
Gross Margin	2000	$40180	$20.09
(-) variable operating expense	2000	7034	$3.517
(-) fixed operating expenses		28136
Operating Income		$5010

• Preparation of Flexile Budget

Units	1494	2690	3870
Sales	74909	134877	194042
(-) Cost of Goods Sold	44895	80835	116294
Gross margin	30014	54042	77748
(-) variable operating expense	5254	9461	13611
(-) fixed operating expenses	28136	28136	28136
Operating Income	$ -3376	$16445	$36002