Question

Exercise 6-1

Vaughn Sports sells volleyball kits that it purchases from a sports equipment distributor. The following static budget based on sales of 2,000 kits was prepared for the year. Fixed operating expenses account for 80% of total operating expenses at this level of sales.

Sales Revenue		$	100,280
Cost of goods sold (all variable)			60,000
Gross margin			40,280
Operating expenses			35,170
Operating income		$	5,110

Prepare a flexible budget based on sales of 1,467, 2,570, and 3,840 units. (Round unit values to 2 decimal places e.g. 15.25 and all other answers to 0 decimal places, e.g. 1525. If operating income is negative, enter amounts using a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Unit 1,467 2,570 3,840 Sales revenue Less ▼ ariable expenses Cost of goods sold Operating expenses Total variable expenses v Contribution margin Fixed expenses Operating income

Answer 1

(i) Selling price per unit = 100,280/2000

= $50.14

(ii) Fixed operating expenses = 35,170 x 80%

= $28,136

(iii) Variable operating expenses for 2000 units = 35,170 - 28,136

= $7,034

Hence, variable operating expense per unit = 7,034/2,000

= $3.52

	Unit	1,467	2,570	3,840
Sales revenue	50.14	73,555	128,860	192,538
Less: Variable expenses:
Cost of goods sold	30	44,010	77,100	115,200
Operating expenses	3.52	5,164	9,046	13,517
Total variable expenses	33.52	49,174	86,146	128,717
Contribution margin	16.62	24,382	42,713	63,821
Fixed expenses		- 28,136	- 28,136	- 28,136
Operating income		- 3,754	14,577	35,685

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