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Preparing a Flexible Budget at the 90,000 Unit Level of Activity

Preparing a Flexible Budget

The flexible budget at the 70,000-unit and the 80,000-unit levels of activity is shown below.

70,000 Units 80,000 Units 90,000 Units
Sales . . . . . . . . . . . . . . $1,400,000 $1,600,000
Cost of goods sold . . . . . . . . . 840,000 960,000
Gross profit on sales . . . . . . . .560,000 640,000
Operating expenses ($90,000 fixed) . 370,000 410,000
Operating income . . . . . . . . . . 190,000 230,000
Income taxes(30% of operating income) 57,000 69,000
Net income . . . . . . . . . . . . . 133,000 161,000

Complete the flexible budget at the 90,000-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.

Solution Preview

Preparing a Flexible Budget

The flexible budget at the 70,000-unit and the 80,000-unit levels of activity is shown below.

70,000 Units 80,000 Units 90,000 Units
Sales . . . . . . . . . . . . . . $1,400,000 $1,600,000
Cost of goods sold . . . . . . . . . 840,000 960,000
Gross profit on sales . . . . . . . .560,000 640,000
Operating expenses ($90,000 fixed) ...

$2.19