1C1G TROUGHTON COMPANY MANUFACTURES RADIO-CONTROLLED TOY DOGS. SUMMA...

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.