Avila Promotions, Inc. sells T-shirts decorated for a variety of concert perform

Question

Avila 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............................................................................

$1,280,000

Cost   of Goods Sold......................................................

   720,000

Gross   Profit..................................................................

  560,000

Operating   Expenses ($180,000 is fixed)......................

   316,000

Operating   Income........................................................

244,000

            Cost of goods sold and variable operating expenses vary directly with sales.

            What would be the operating income if actual sales are 60,000 T-shirts?

  

Sales............................................................................

     

$1,280,000

     

Cost   of Goods Sold......................................................

     

   720,000

     

Gross   Profit..................................................................

     

  560,000

     

Operating   Expenses ($180,000 is fixed)......................

     

   316,000

     

Operating   Income........................................................

     

244,000

  

Explanation / Answer

Hi,

Please find the answer as follows:

Answer is 138000

Thanks.

Sales 960000 Less Cost of Goods Sold 540000 Gross Profit 420000 Operating Expenses (Fixed) 180000 Operating Expenses (Variable) 102000 Net Operating Income 138000

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