Summer Nights sells bottles of bug spray for $8.00 each. Variable costs are $2.00 per bottle, while fixed costs are $40,000 per month for volumes up to 40,000 bottles of spray and $58,000 per month for volumes above 40,000 bottles of spray. The flexible budget would reflect monthly operating income for 10,000 bottles of lotion and 22,000 bottles of lotion of what dollar amounts?
A)$40,000 and $92,000, respectively
B)$20,000 and $92,000, respectively
C)$80,000 and $176,000, respectively
D)$2000 and $118,000, respectively

Question

Quizplus · Accepted Answer

For 10,000 bottles of spray:
Revenue = 10,000 x $8.00 = $80,000
Variable costs = 10,000 x $2.00 = $20,000
Fixed costs = $40,000 (since volume is below 40,000 bottles)
Operating income = Revenue - Variable costs - Fixed costs
Operating income = $80,000 - $20,000 - $40,000 = $20,000

For 22,000 bottles of spray:
Revenue = 22,000 x $8.00 = $176,000
Variable costs = 22,000 x $2.00 = $44,000
Fixed costs = $58,000 (since volume is above 40,000 bottles)
Operating income = Revenue - Variable costs - Fixed costs
Operating income = $176,000 - $44,000 - $58,000 = $74,000

Therefore, the flexible budget would reflect monthly operating income for 10,000 bottles of spray and 22,000 bottles of spray of $20,000 and $74,000, respectively. The closest answer choice to this is B.

Summer Nights Sells Bottles of Bug Spray for $8