Question

Based on a predicted level of production and sales of 21,000 units, a company anticipates total contribution margin of $56,700, fixed costs of $21,000, and operating income of $35,700. Based on this information, the budgeted operating income for 19,000 units would be:

Multiple Choice

$35,700.

$77,700.

$30,300.

$39,789.

$56,700.

Answer 1

$30,300

Solution:

Total contribution margin for 21,000 units = $ 56,700

Per unit contribution margin = $ 56,700 / 21,000 = $ 2.7

There is no information on selling price and variable cost, it means there is no change in selling price per unit and variable cost per unit. So, contribution margin per unit will be $ 2.7 for production and sales of 19,000 units.

Total contribution for 19,000 units = 19,000 X $ 2.7 = $51,300

Fixed cost = $ 21,000 (Fixed cost remains constant irrespective of output).

Budgeted operating income for 19,000 units will be:

= Total contribution for 19,000 units -Fixed cost

=$ 51,300 - $ 21,000

= $ 30,300 (Answer)