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 105,000-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			105,000-units
Sales	$	1,400,000		$	1,600,000
Cost of goods sold		840,000			960,000
Gross profit on sales	$	560,000			640,000
Operating expenses ($90,000 fixed)		370,000			410,000
Operating income	$	190,000		$	230,000		$
Income taxes (30% of operating income)		57,000			69,000
Net income	$	133,000		$	161,000		$

Answer 1

	Units	Workings	70,000	80,000	1,05,000
a.	Sales Revenue	($ 20 per unit X 1,05,000)	$ 14,00,000	$ 16,00,000	$ 21,00,000
b.	Cost of goods sold	($2100000 X 60%)	$   8,40,000	$   9,60,000	$ 12,60,000
c.	Gross profit on sales	(a - b)	$   5,60,000	$   6,40,000	$   8,40,000
d.	Operating Expenses	[$90000 + ($2100000 X 20%)]	$   3,70,000	$   4,10,000	$   5,10,000
e.	Operating Income	(c - d)	$   1,90,000	$   2,30,000	$   3,30,000
f.	Income taxes @ 30%	(e X 30%)	$       57,000	$       69,000	$       99,000
g.	Net Income	( e - f)	$   1,33,000	$   1,61,000	$   2,31,000
	Workings:
(i)	Units	=	70,000	80,000
(ii)	Sales Revenue	=	$ 14,00,000	$ 16,00,000
(ii) / (i)	Selling price per unit	=	$               20	$               20
(iii)	Cost of goods sold	=	$   8,40,000	$   9,60,000
(iii) / (ii)	Cost of goods sold ratio to sales	=	60%	60%
(iv)	Operating Expenses	=	$   3,70,000	$   4,10,000
(v)	Fixed Expenses	=	$       90,000	$       90,000
(iv) = (iv) - (v)	Variable expenses	=	$   2,80,000	$   3,20,000
(iv) / (ii)	Variable Expenses ratio to sales	=	20%	20%