Based on a predicted level of production and sales of 12,000 units, a company anticipates reporting operating income of $26,000 after deducting variable costs of $72,000 and fixed costs of $10,000. Based on this information, the budgeted amounts of fixed and variable costs for 15,000 units would be:
A) $10,000 of fixed costs and $72,000 of variable costs.
B) $10,000 of fixed costs and $90,000 of variable costs.
C) $12,500 of fixed costs and $90,000 of variable costs.
D) $12,500 of fixed costs and $72,000 of variable costs.
E) $10,000 of fixed costs and $81,000 of variable costs.

Question

Quizplus · Accepted Answer

Fixed costs remain constant regardless of the level of production or sales, so they would stay at $10,000. Variable costs change with the level of production or sales. Since the variable costs for 12,000 units are $72,000, for 15,000 units (which is 25% more), the variable costs would increase by 25% to $90,000.

Based on a Predicted Level of Production and Sales of 12,000