A companys master budget projected the following information:

Sales (25,000 units)	$250,000
Manufacturing costs (1/3 fixed)	120,000
Other operating costs (all fixed)	100,000

If the company actually sold 27,500 units, the operating income when using a flexible budget would be

• A.$33,000

• B.$43,000

• C.$51,000

• D.$47,000

I know the answer to this problem is D $47,000, but I am not understanding how 2/3 is put into the equation.

Sales 25,000 units 250,000. 250/000 /25,000 = $10.00 per units

27,500 units sold = 27,500*10 = 275,000

1/3 of Manufacturing cost is given which is 120,000 *1/3 = 40,000

120,000 *2/3 (not sure how to get 2/3 - please explain) = 80,000

80,000/25,000 sale = 3.20 * 27,500 = 88,000 Variable manufacturing overhead

88,000+40,000 = 128,000

Therefore 275,000 - 128,000 - 100,000 = 47,000