Kevin Couriers Company prepared the following static budget for the year: $$\begin{array} { | l | c | r | }
\hline \text { Static Budget } & & \
\hline \text { Units/Volume } & & 5,000 \
\hline & \text { Per Unit } & \
\hline\text { Sales Revenue } & \$ 7.00 & \$ 35,000 \
\hline \text { Variable Costs } & 1.50 & \underline { 7,500 } \
\hline \text { Contribution Margin } & & 27,500 \
\hline \text { Fixed Costs } & & \underline { 4,000 } \
\hline\text { Operating Income/(Loss) } & & \$ 23, 500 \
\hline
\end{array}$$ If a flexible budget is prepared at a volume of 7,500,calculate the amount of operating income.The production level is within the relevant range.
A) $37,250
B) $23,500
C) $11,250
D) $4,000

Question

Kevin Couriers Company prepared the following static budget for the year: $$\begin{array} { | l | c | r | } 
\hline \text { Static Budget } & & \
\hline \text { Units/Volume } & & 5,000 \
\hline  & \text { Per Unit } & \
\hline\text { Sales Revenue } & \$ 7.00 & \$ 35,000 \
\hline \text { Variable Costs } & 1.50 & \underline { 7,500 } \
\hline \text { Contribution Margin } & & 27,500 \
\hline \text { Fixed Costs } & & \underline { 4,000 } \
\hline\text { Operating Income/(Loss) } & & \$ 23, 500 \
\hline 
\end{array}$$ If a flexible budget is prepared at a volume of 7,500,calculate the amount of operating income.The production level is within the relevant range.
A) $37,250
B) $23,500
C) $11,250
D) $4,000

Quizplus · Accepted Answer

The flexible budget at 7,500 units would have sales revenue of $52,500 (7,500 units * $7.00 per unit), variable costs of $11,250 (7,500 units * $1.50 per unit), resulting in a contribution margin of $41,250 ($52,500 - $11,250). Fixed costs remain the same at $4,000. Therefore, the operating income would be $37,250 ($41,250 - $4,000).

Kevin Couriers Company Prepared the Following Static Budget for the Year