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 79,000 T-shirts:
Sales.........................................................................$ 1,381,710
Cost of Goods Sold.......................................................808,960
Gross Profit....................................................................572,750
Operating Expenses ($100,000 is fixed)........................414,420
Operating Income..........................................................158,330
Income Taxes (30% of Operating income)......................47,499
Net Income..................................................................$ 110,831
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 59,000 T-shirts,
1. In a flexible budget for sales of 59,000 T-shirts, how much would Baskin budget for operating expenses?
a. $234,820.
b. $334,820.
c. $414,420.
d. $314,420.
2. What unit cost did Baskin use in budgeting the cost of goods sold for the year?
a. $5.98
b. $10.24.
c. $17.49.
Some other amount.
3. Assume Baskin actually achieves the 59,000 unit sales level, and that net income actually earned at this level was $67,700. A performance report would indicate that net income was:
a. $2,649 over budget.
b. $43,131 under budget.
c. $17,901 under budget.
d. At the budgeted level.