Baskin 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 90,000 T-shirts:       Sales $ 1,584,000   Cost of Goods Sold   931,500   Gross Profit   652,500   Operating Expenses ($100,000 is fixed)   458,200   Operating Income   194,300   Income Taxes (30% of operating income)   58,290   Net Income $ 136,010           Cost of goods sold and variable operating expenses vary directly with sales, and the income tax rate is 30% at all levels of operating income.   If the concert season is slow due to poor weather, Baskin estimates that sales could fall to as low as 70,000 T-shirts.     Assume Baskin actually achieves the 70,000 unit sales level, and that net income actually earned at this level was $93,000. A performance report would indicate that net income was:   Multiple Choice   $2,770 over budget.   $43,010 under budget.   $7,110 under budget.   At the budgeted level.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Baskin 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 90,000 T-shirts:

 

   
Sales $ 1,584,000  
Cost of Goods Sold   931,500  
Gross Profit   652,500  
Operating Expenses ($100,000 is fixed)   458,200  
Operating Income   194,300  
Income Taxes (30% of operating income)   58,290  
Net Income $ 136,010  
 

   

 

Cost of goods sold and variable operating expenses vary directly with sales, and the income tax rate is 30% at all levels of operating income.

 

If the concert season is slow due to poor weather, Baskin estimates that sales could fall to as low as 70,000 T-shirts.

 

 

Assume Baskin actually achieves the 70,000 unit sales level, and that net income actually earned at this level was $93,000. A performance report would indicate that net income was:

 

Multiple Choice
  •  
    $2,770 over budget.
  •  
    $43,010 under budget.
  •  
    $7,110 under budget.
  •  
    At the budgeted level.
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