Based on a predicted level of production and sales of 22,000 units, a company anticipates total variable costs of $99,000, fixed costs of $30,000, and operating income of $36,000.
- Based on this information, the budgeted amount of fixed costs for 20,000 units would be:
A) $90,000.
B) $30,000.
C) $99,000.
D) $150,000.
E) $66,000.

Question

Quizplus · Accepted Answer

Using the high-low method, the variable costs per unit can be calculated:
Variable Cost per Unit = (Total Variable Cost at High Level - Total Variable Cost at Low Level) / (High Level Production - Low Level Production)
Variable Cost per Unit = ($99,000 - $N/A) / (22,000 - 20,000)
Variable Cost per Unit = $49.50

Using the formula for operating income, the budgeted fixed costs can be calculated:
Operating Income = (Sales x Variable Cost per Unit) - Fixed Costs
$36,000 = (22,000 x $49.50) - $30,000
$36,000 = $1,089,000 - $30,000 - Fixed Costs
Fixed Costs = $1,089,000 - $30,000 - $36,000
Fixed Costs = $1,023,000

Therefore, the budgeted amount of fixed costs for 20,000 units would be $1,023,000. However, since fixed costs do not vary with changes in production or sales levels, the answer is simply the given fixed cost of $30,000.

Based on a Predicted Level of Production and Sales of 22,000