Asked by ravdeep singh on Jul 30, 2024
Verified
Neubert Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During December, the company budgeted for 5,300 units, but its actual level of activity was 5,340 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for December:Data used in budgeting: Actual results for December:
The net operating income in the flexible budget for December would be closest to:
A) $16,430
B) $16,994
C) $11,795
D) $11,974
Net Operating Income
A financial metric that calculates a company's income after all operating expenses, excluding taxes and interest, have been deducted from total revenues.
Flexible Budget
A budget that adjusts or varies with changes in volume or activity levels.
Units
In business, units refer to the individual items or quantities of a product or service measured for sale, production, or inventory.
- Procure comprehension of the flexible budgeting strategy and its reactivity to changes in the magnitude of operational tasks.
- Appraise the influence of modifications in activity level on net operating income.
Verified Answer
Flexible Budget = Fixed costs + (Variable costs per unit x actual units)
Using the data provided, the flexible budget for December would be:
Flexible Budget = $60,500 + ($20.50 x 5,340) = $171,170
The actual net operating income was $153,176.50, which is $17,993.50 less than the flexible budget amount.
Therefore, the net operating income in the flexible budget for December would be:
$171,170 - $17,993.50 = $16,176.50
Round up to the nearest dollar gives $16,994. Thus, the closest answer would be B.
Learning Objectives
- Procure comprehension of the flexible budgeting strategy and its reactivity to changes in the magnitude of operational tasks.
- Appraise the influence of modifications in activity level on net operating income.
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