Question

ABC Corporation is a service company that measures its output based on the number of customers served. The company provided the following fixed and variable cost estimates that it uses for budgeting purposes:

	Fixed amount per month	Variable amount per customer
Revenue		$5,000
Payroll cost	$50,000	$1,100
Travel expenses		$600
Admin expenses	$36,000	$500
Other expenses	$10,000	$200

When preparing its planning budget, the company estimated that it would serve 60 customers per month; however, during April the company actually served 55 customers.

What amount of net operating income would appear in ABC's static budget for April?

Is there a need to prepare a flexible budget for April? If so, explain why.

Further, what amount of net operating income would appear on ABC's flexible budget for April?

Answer 1