Q14455

Troughton Company manufactures radio-controlled toy dogs. Summary budget financial data for Troughton for the current year are as follows. Sales (5,000 units at $150 each) $750,000 Variable manufacturing cost 400,000 Fixed manufacturing cost 100,000 Variable selling and administrative cost 80,000 Fixed selling and administrative cost 150,000 Troughton uses an absorption costing system with overhead applied based on the number of units produced, with a denominator level of activity of 5,000 units. Underapplied or overapplied manufacturing overhead is written off to cost of goods sold in the year incurred. The $20,000 budgeted operating income from producing and selling 5,000 toy dogs planned for this year is of concern to Trudy George, Troughtons president. She believes she could increase operating income to $50,000 (her bonus threshold) if Troughton produces more units than it sells, thus building up the finished goods inventory. How much of an increase in the number of units in the finished goods inventory would be needed to generate the $50,000 budgeted operating income? a. 556 units. b. 600 units. c. 1,500 units. d. 7,500 units.