Sound Design Sells Its Computer Speakers for $115 Per Set

question 164

Multiple Choice

Sound Design sells its computer speakers for $115 per set. Its variable cost is $70 per set of speakers. Fixed costs are $85,000 per month for volumes up to 2300 sets of speakers. Above 2300 sets, monthly fixed costs are $163,000. What is the budgeted operating income (loss) at a sales level of 2900 sets of speakers per month?

• A)Operating loss of $32,500
• B)Operating income of $130,500
• C)Operating income of $45,500
• D)Operating income of $170,500

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Definitions:

Factoring Receivables

A financial transaction where a business sells its accounts receivable to a third party at a discount in exchange for immediate cash.

Allowance for Doubtful Accounts

A contra asset account on a company’s balance sheet that represents the amount of receivables it does not expect to collect.

Credit Sales

Sales transactions where the customer is allowed to pay at a later date, typically generating accounts receivable.

Bad Debt Expense

Represents the expense associated with accounts receivable that a company does not expect to collect.