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Financial & Managerial Accounting
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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


Variable cost per unit ($)

Total fixed cost ($)

At 20,000 units ($)

At 26,000 units ($)

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




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




Contribution margin




Fixed cost




Net operating income



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.)


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


Total standard cost.


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


Fixed overhead costs

Depreciation—Building 24,000

Depreciation—Machinery 80,000

Taxes and insurance 12,000

Supervision 79,000

Total fixed overhead costs


Total overhead costs


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.)


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


Total costs



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.


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