Question

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Baskin Promotions, Inc. sells T-shirts decorated for a variety of concert performers. The company has developed the following budget for the coming year based on a sales forecast of 88,000 T-shirts:

Sales	$	1,547,040
Cost of Goods Sold		909,040
Gross Profit		638,000
Operating Expenses ($100,000 is fixed)		450,240
Operating Income		187,760
Income Taxes (30% of operating income)		56,328
Net Income	$	131,432

   

Cost of goods sold and variable operating expenses vary directly with sales, and the income tax rate is 30% at all levels of operating income.

If the concert season is slow due to poor weather, Baskin estimates that sales could fall to as low as 68,000 T-shirts.

n a flexible budget for sales of 68,000 T-shirts, how much would Baskin budget for operating expenses?

Answer 1

Ans.	Statement showing Flexible Budget for 68,000 T-Shirts:
	Pariulars					Amt.($)	Amt.($)
	Sales (1,547,040/88,000) x 68,000						1195440
	Less: Cost of goods sold (909,040/1,547,040) x 1,195,000						702440
	Gross Profit						493000
	Less: Operating expenses
	Variable (350,240/1,547,040) x 1,195,440					270640
	Fixed					100000	370640
	Operating Income						122360
	Less: Income Taxes (30% of Operating Income)						36708
	Net Income						85652