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 96,000-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	96,000 Units
Sales	$1,400,000	$1,600,000
Cost of goods sold	840,000	960,000
Gross profit on sales	$560,000	$640,000	$0
Operating expenses ($90,000 fixed)	370,000	410,000
Operating income	$190,000	$230,000	$0
Income taxes (30% of operating income)	57,000	69,000
Net income	$133,000	$161,000	$0

Answer 1

Selling price per unit = Sales / Number of units

= 1,400,000 / 70,000

= 20

Cost of goods sold per unit = Cost of goods sold / Number of units

= 840,000 / 70,000

= 12

Gross profit per unit = Selling price per unit - Cost of goods sold per unit

= 20 - 12

= 8

Operating expenses per unit = (410,000 - 370,000) / (80,000 - 70,000)

= 40,000 / 10,000

= 4

Flexible budget

	96,000 units
Sales (96,000*20)	1,920,000
Cost of goods sold (96,000*12)	1,152,000
Gross profit on sales	768,000
Operating expenses [(96,000*4) + 90,000]	474,000
Operating income	294,000
Income taxes (294,000*30%)	88,200
Net income	205,800