A packaging company produces cardboard boxes in an automated process. The required direct materials costs $0.30 per unit. Fixed manufacturing overhead costs are budgeted at $24,000 per month and are allocated based on units of production. The budgeted contribution margin per unit is $0.85, and administration fixed costs are budgeted at $7,500 per month.What is the flexible-budget amount for operating income for 40,000 and 20,000 units, respectively? A) $26,000; $20,000 B) $36,000; $30,000 C) $40,000; $34,000 D) $44,000; $38,000 E) $2,500;

Question

A packaging company produces cardboard boxes in an automated process. The required direct materials costs $0.30 per unit. Fixed manufacturing overhead costs are budgeted at $24,000 per month and are allocated based on units of production. The budgeted contribution margin per unit is $0.85, and administration fixed costs are budgeted at $7,500 per month.What is the flexible-budget amount for operating income for 40,000 and 20,000 units, respectively?
A) $26,000; $20,000
B) $36,000; $30,000
C) $40,000; $34,000
D) $44,000; $38,000
E) $2,500; <$14,500>

Quizplus · Accepted Answer

For 40,000 units: The contribution margin is $0.85 per unit, so for 40,000 units, it's $34,000 (40,000 * $0.85). Fixed costs (manufacturing overhead + administration) total $31,500 ($24,000 + $7,500). Operating income = Contribution margin - Fixed costs = $34,000 - $31,500 = $2,500.For 20,000 units: The contribution margin is $0.85 per unit, so for 20,000 units, it's $17,000 (20,000 * $0.85). Fixed costs remain the same at $31,500. Operating income = Contribution margin - Fixed costs = $17,000 - $31,500 = -$14,500.

A Packaging Company Produces Cardboard Boxes in an Automated Process