Select your language

Suggested languages for you:
Log In Start studying!
Answers without the blur. Sign up and see all textbooks for free! Illustration

Q3QS

Expert-verified
Financial & Managerial Accounting
Found in: Page 968

Answers without the blur.

Just sign up for free and you're in.

Illustration

Short Answer

Question: Brodrick Company expects to produce 20,000 units for the year ending December 31. A flexible budget for 20,000 units of production reflects sales of $400,000; variable costs of $80,000; and fixed costs of $150,000. If the company instead expects to produce and sell 26,000 units for the year, calculate the expected level of income from operations.

The expected net operating income from the production and sale of 26,000 units is $266,000.

See the step by step solution

Step by Step Solution

Step 1: Meaning of Operating Income

Operating income refers to the income generated by a business concern from its core operations. It is computed by taking the difference between sales revenue and the associated costs such as variable and fixed.

Step 2: Computation of income from operations

Particulars

Variable cost per unit ($)

Total fixed cost ($)

At 20,000 units ($)

At 26,000 units ($)

Selling price ($400,000/20,000 units)

20

400,000

520,000

Variable costs ($80,000/20,000 units)

4

80,000

104,000

Contribution margin

16

320,000

416,000

Fixed cost

150,000

150,000

150,000

Net operating income

$170,000

$266,000

Most popular questions for Business-studies Textbooks

Antuan Company set the following standard costs for one unit of its product.

Direct materials (6 Ibs. @ $5 per Ib.)

$ 30

Direct labor (2 hrs. @ $17 per hr.)

34

Overhead (2 hrs. @ $18 .50 per hr.)

37

Total standard cost.

$101

The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level.

Overhead Budget (75% Capacity)

Variable overhead costs

Indirect materials $ 45,000

Indirect labor 180,000

Power 45,000

Repairs and maintenance 90,000

Total variable overhead costs

$360,000

Fixed overhead costs

Depreciation—Building 24,000

Depreciation—Machinery 80,000

Taxes and insurance 12,000

Supervision 79,000

Total fixed overhead costs

195,000

Total overhead costs

$555,000

The company incurred the following actual costs when it operated at 75% of capacity in October.

Direct materials (91,000 Ibs. @ $5 .10 per lb.)

$ 464,100

Direct labor (30,500 hrs. @ $17 .25 per hr.)

526,125

Overhead costs

Indirect materials $ 44,250

Indirect labor 177,750

Power 43,000

Repairs and maintenance 96,000

Depreciation—Building 24,000

Depreciation—Machinery 75,000

Taxes and insurance 11,500

Supervision 89,000

560,500

Total costs

$1,550,725

Required

1.Examine the monthly overhead budget to

(a) determine the costs per unit for each variable overhead item and its total per-unit costs and

(b) Identify the total fixed costs per month.

2.Prepare flexible overhead budgets (as in Exhibit 21.12) for October showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels.

3.Compute the direct materials cost variance, including its price and quantity variances.

4.Compute the direct labor cost variance, including its rate and efficiency variances.

5.Prepare a detailed overhead variance report (as in Exhibit 21.16) that shows the variances for individual items of overhead.

Icon

Want to see more solutions like these?

Sign up for free to discover our expert answers
Get Started - It’s free

Recommended explanations on Business-studies Textbooks

94% of StudySmarter users get better grades.

Sign up for free
94% of StudySmarter users get better grades.