New Rock, Inc. sells video games it has purchased from a local distributor. The following static budget is based on sales of 8,000 games. However, New Rock only sold 7,800 games during the year. Fixed costs are 30% of total operating expenses

Sales$512,000Cost of goods sold (variable)230,000Gross margin282,000Operating expenses220,000Net income$ 62,000

Prepare a flexible budget.

Solution:

                                           New Rock, Inc.

                                           Flexible Budget

Sales Revenue (7,800 x $64)                                           $499,200

Cost of Goods Sold (7,800 x $28.75)                               224,250

Gross Profit                                                                         274,950

Variable operating expenses(7,800 x 19.25)                   150,150

Fixed operating expenses ($220,000 x 0.30)                  66,000

Net Income                                                                        $58,800

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