Question

Brodrick Company expects to produce 20,000 units for the year ending December 31. A flexible budget for 20,000 units of production reflects sales of \(400,000; variable costs of \)80,000; and fixed costs of $150,000. If the company instead expects to produce and sell 26,000 units for the year, calculate the expected level of income from operations.

Short answer

The expected net operating income from the production and sale of 26,000 units is$266,000.

Step-by-step solution

Meaning of Operating Income

Operating income refers to the income generated by a business concern from its core operations. It is computed by taking the difference betweensales revenue and the associated costssuch as variable and fixed.

Computation of income from operations

Particulars	Variable cost per unit ($)	Total fixed cost ($)	At 20,000 units ($)	At 26,000 units ($)
Selling price ($400,000/20,000 units)	20		400,000	520,000
Variable costs ($80,000/20,000 units)	4		80,000	104,000
Contribution margin	16		320,000	416,000
Fixed cost		150,000	150,000	150,000
Net operating income			$170,000	$266,000