Krazy Kayaks: Paddle Your Way to Big Profits!

How can Krazy Kayaks maximize its profits?

What is the budgeted operating income at a level of 2,500 kayaks per month?

Answer

The budgeted operating income at a level of 2,500 kayaks per month for Krazy Kayaks is $565,000.

Krazy Kayaks is making a splash in the kayak industry with their entry-level kayaks priced at $750 each. With variable costs of $500 per kayak and fixed costs varying depending on the volume of kayaks produced, the company is looking to paddle their way to big profits.

At a level of 2,500 kayaks per month, Krazy Kayaks can expect to generate sales revenue of $1,875,000 ($750 x 2,500). After deducting variable costs of $1,250,000 ($500 x 2,500), the company is left with a contribution margin of $625,000.

With fixed costs amounting to $60,000 per month for volumes above 1,100 kayaks, the budgeted operating income for Krazy Kayaks at 2,500 kayaks per month would be $565,000, allowing the company to make waves in the industry and continue to grow their business.