Barnes Corporation expected to sell 150,000 board games during the month of November, and the company’s master budget contained the following data related to the sale and production of these games:.Revenue $2,400,000Cost of goods sold:Direct materials $675,000Direct labor $300,000Variable Overhead $450,000Contribution Margin $975,000Fixed overhead $250,000Fixed selling and administration $500,000Operating income $225,000Actual sales during November were 180,000 games. Using a flexible budget, the company expects the operating income for the month of November to be:.A) $225,000B) $270,000C) $420,000D) $510,000

C) $420,000

Explanation:

Barnes Corporation

                                                  Master budget            Flexible budget

                                                   150,000 games       180,000  games

Revenue                                  $2,400,000                   $2,880,000    

Cost of goods sold:

Direct materials                     $675,000                         $810,000        

Direct labor                           $300,000                         $360,000        

Variable Overhead               $450,000                          $540,000

Contribution Margin             $975,000                           $ 1170,000

Fixed overhead                    $250,000                            $ 250,000

Fixed selling and administration $500,000                    $500,000    

Operating income                 $225,000                          $420,000

We calculate each term by dividing the cost by 150,000 units and multiplying the unit cost with the actual units  180,000. It is assumed that the fixed costs remain constant for the range of units from 150,000 - 200,000.

This gives an operating income of $ 420,000

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