Question

Maxie Company is creating their budget for the following year. Here is their relevant information:

Expected Sales 1,000 units per month

Sales Price $15 per unit

Variable Labor costs $3 per unit

Variable Material costs $2 per unit

Fixed Costs $6,000 per month

In the first month of the new year, Maxie Company only produced and sold 800 units. What is their flexible budget operating income?

a) $4,000

b) $0

c) $8,000

d) $2,000

Answer 1

Ans.	Option   D    $2,000
	Flexible Budget
	Particulars	Amount
	Sales (a)	$12,000
	Less: Variable costs
	Labor	$2,400
	Material	$1,600
	Total variable cost (b)	$4,000
	Contribution margin   (a-b)	$8,000
	Less: Fixed cost	$6,000
	Operating income	$2,000
	*Calculations of Flexible budget:
	*Flexible budget is prepared on the basis of actual units.
	Sales revenue = Actual sales units * Selling price
	800 * $15   $12,000
	Variable labor cost = Actual sales units * Variable labor cost per unit
	800 * $3   = $2,400
	Variable materials cost = Actual sales units * Variable materials cost per unit
	800 * $2   =   $1,600
	*Fixed cost always remains constant.