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
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 80,000 T-shirts:
Sales | $ | 1,400,000 |
Cost of Goods Sold | 820,000 | |
Gross Profit | 580,000 | |
Operating Expenses ($100,000 is fixed) | 418,400 | |
Operating Income | 161,600 | |
Income Taxes (30% of operating income) | 48,480 | |
Net Income | $ | 113,120 |
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 60,000 T-shirts.
a. In a flexible budget for sales of 60,000 T-shirts, how much would Baskin budget for operating expenses?
b. Assume Baskin actually achieves the 60,000 unit sales level, and that net income actually earned at this level was $70,000. How would a performance report reflect net income? Over budget? Under budget? Or at budget? If over/under; by how much?
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