Question

Hyson Inc. manufactures and sells produces. The master budget and the actual results for July are as follows:

	Actual July Sales	Master Budget
Un it sales	12,000	10,000
Sales	$132,000	$100,000
Variable costs	$70,800	$60,000
Contribution margin	$61,200	$40,000
Fixed costs	$30,000	$25,000
Operating income	$31,200	$15,000

If flexible budgeting is used, how much is contribution margin per unit based on actual sales of 12,000 units?

(A)	$4.00
(B)	$5.10
(C)	$4.55
(D)	None of the above

How much is the operating income for Hyson Inc. using a flexible budget for July?

(A)	$31,200
(B)	$21,000
(C)	$23,000
(D)	$15,000

please explain answer

Answer 1

Answer of Part 1: The correct answer is A i.e. $4
Budgeted Selling price per unit = Master Sales / Master unit sales
Budgeted Selling price per unit = $100,000 / 10,000
Budgeted Selling price per unit = $10

Budgeted Variable Costs per unit = Master Variable Cost / Master unit
Budgeted Variable Cost per unit = $60,000 / 10,000
Budgeted Variable cost per unit = $6

Budgeted Contribution Margin per unit = Budgeted Selling price per unit – Budgeted Variable cost per unit
Budgeted Contribution Margin per unit = $10 - $6
Budgeted Contribution Margin per unit = $4

Answer of Part 2: The correct answer is C i.e. $23,000

Budgeted Contribution Margin = $4 * 12,000
Budgeted Contribution Margin = $48,000

Operating Income = Budgeted Contribution Margin – Master Fixed Costs
Operating Income = $48,000 - $25,000
Operating Income = $23,000