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.
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Selling price. 25
Material. 5
Labour. 7
Variable overhead 3
Fixed overhead. 4
(19)
Profit per unit 6
Budgeted output is 30,000 unitsThe answer to this question is that “if budgeted sales increase to 40,000 units, budgeted profit will increase by 100,000”
You have not written what it is you are asking me to explain!!!
If you have watched my free lectures (or remember from Paper MA) then you will know that the total fixed overheads of $120,000 will stay fixed (by definition) and therefore for increase of 10,000 units (from 30,000 to 40,000) the profit will increase by the extra contribution of $10 per unit.
Apologies…
the question was how did the budgeted sales increase to 40,000 units?But how did you get the total fixed overheads?
The budgeted fixed overheads are $4 per unit based on a budgeted output of 30,000 units. Therefore they are budgeting on total fixed overheads of 30,000 x $4 = $120,000. By definition, the total fixed overheads will not change with the level of production.
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