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1 April, 14:54

A company's flexible budget for 16,000 units of production showed sales, $48,000; variable costs, $24,000; and fixed costs, $17,000. The operating income expected if the company produces and sells 17,000 units is: Multiple Choice $ 7,000. $44,000. $5,000. $8,500. $22,000.

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  1. 1 April, 15:31
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    The correct answer is $8,500

    Explanation:

    Total sales $48,000 with 16,000 units

    Variable cost $24,000

    Fixed cost $17,000

    First we need to know the variable cost per unit.

    $24,000 (variable cost) / 16,000 (units sold) = $1.5 (variable cost per unit)

    Then we need to know the price of each article

    48,000 (total sales) / 16,000 (units) = $3 (sells price per unit)

    Then we replace at the formula "production cost"

    (units to sell "if the company produces and sells" * variable cost per unit) + fixed cost = Production cost (for the units produced. if the units change, the production cost change too)

    $17,000 (units to produce and sell) * 1.5 variable cost per unit = 25,500 / 17,000 (fixed cost) = $42,500 Production cost.

    Finally the question says: "if the company produce and sells"

    So we need to know the total amount in dollars that we receive for the products.

    $3 (sells price per unit) * 17,000 (new units sold) = $51,000 money received

    Operating income if the company produces and sells 17,000

    $51,000 (money received) - $42,500 (production cost for the 17,000 units) = $8,500
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