Question

Baskin Promotions, Inc. sells T-shirts decorated for a variety of concert performers. The company has developed the following budget for the coming year based on a sales forecast of 77,000 T-shirts:

Sales	$	1,345,190
Cost of Goods Sold		786,940
Gross Profit		558,250
Operating Expenses ($100,000 is fixed)		406,460
Operating Income		151,790
Income Taxes (30% of operating income)		45,537
Net Income	$	106,253

   

Cost of goods sold and variable operating expenses vary directly with sales, and the income tax rate is 30% at all levels of operating income.

If the concert season is slow due to poor weather, Baskin estimates that sales could fall to as low as 57,000 T-shirts.

1. In a flexible budget for sales of 57,000 T-shirts, how much would Baskin budget for operating expenses?

Multiple Choice

• $226,860

• $326,860

• $406,460

• $306,460

2. What unit cost did Baskin use in budgeting the cost of goods sold for the year?

• $5.95 per unit

• $10.22 per unit

• $17.47 per unit

• Some other amount

3. Assume Baskin actually achieves the 57,000 unit sales level, and that net income actually earned at this level was $63,100. A performance report would indicate that net income was:

• $2,627 over budget.

• $43,153 under budget.

• $19,863 under budget.

• At the budgeted level.

Answer 1