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Budgeted costs and revenue for an output level of 4000 units are given below. It is known that after an output level of 5000 units there is a step up in fixed costs $1000:
$ per unit
Selling price 30
Variable cost 18
Fixed cost 4
what is the flexed budget profit at an output level of 6000 units?
Can you please explain this question
The contribution per unit is $12.
The fixed overheads have been absorbed as $4 per unit when the output was 4,000, which means that the total fixed costs were $16,000. If the output is 6,000 units then the total fixed costs increase by $1,000 to $17,000.
So for 6,000 units the total contribution will be $72,000 and the total profit will be 72,000 – 17,000 = $55,000.