170. CSO: 1C1d LOS: 1C1g
Troughton Company manufactures radio-controlled toy dogs. Summary budget financial
data for Troughton for the current year are as follows.
Sales (5,000 units at $150 each) $750,000
Variable manufacturing cost 400,000
Fixed manufacturing cost 100,000
Variable selling and administrative cost 80,000
Fixed selling and administrative cost 150,000
Troughton uses an absorption costing system with overhead applied based on the number
of units produced, with a denominator level of activity of 5,000 units. Underapplied or
overapplied manufacturing overhead is written off to cost of goods sold in the year
incurred. The $20,000 budgeted operating income from producing and selling 5,000 toy
dogs planned for this year is of concern to Trudy George, Troughton’s president. She
believes she could increase operating income to $50,000 (her bonus threshold) if
Troughton produces more units than it sells, thus building up the finished goods
inventory. How much of an increase in the number of units in the finished goods
inventory would be needed to generate the $50,000 budgeted operating income?
a. 556 units.
b. 600 units.
c. 1,500 units.
d. 7,500 units.
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