Infinity Clock Company prepared the following static budget for the year: Static Budget Units/Volume 5 comma 000 Per Unit Sales Revenue $ 7.00 $ 35 comma 000 Variable Costs 1.00 5 comma 000 Contribution Margin 30 comma 000 Fixed Costs 4 comma 000 Operating Income/(Loss) $ 26 comma 000 If a flexible budget is prepared at a volume of 6 comma 300 units, calculate the amount of operating income. The production level is within the relevant range. A. $ 33 comma 800 B. $ 6 comma 300 C. $ 4 comma 000 D. $ 26 comma 000

a) Operating income - $33,800

Explanation:

The flexible budget would be prepared for  a different activity level of 6,300 production units but using the assumptions of the fixed budget

                                                                               $

Sales revenue - ($7× 6,300 units  )   :             44,100.00

Less Variable cost -      ($1 ×  6,300 units ) :      ( 6,300)

Contribution                                                       37,800

Less Fixed costs                                                (4,000)

                                                                             33,800

Note that the fixed costs of $4000 remains the same for both the static and flexible budgets. This is because the activity level of 6,300 units of the flexible budget remains within relevant range. So the fixed cost would not change.

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