Question

"M & G TV and Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 2017 operations.
Sales (2,000 televisions) $2,000,000
Cost of goods sold 570,000
Store manager's salary per year 130,000
Operating costs per year 280,000
Advertising and promotion per year 32,000
Commissions (2.3% of sales) 46,000
What are the estimated total costs if the company expects to sell 3,300 units next year?"

1. $1,458,400
2. $2,803,700
3. $2,361,700
4. $517,900

Answer 1

Answer:

1) $ 1,458,400

Explanation:

Total Cost = Fixed Cost + Variable Cost

Variable Cost: Variable cost varies with the change in level of production.

Fixed Cost: Fixed cost remains fixed regardless of the production level.

In the given question, following are the classification of cost

Cost of Goods Sold (Variable)

Store Manager Salary (Fixed)

Operating Cost (Fixed)

Advertising cost (Fixed)

Commission (Variable)

Calculation of Cost

Cost of Goods Sold       940,500 (570,000/2000*3300)

Store Manager Salary    130,000

Operating cost              280,000

Advertising                      32,000

Commission*                   75,900 (2.3% of 3,300,000 sales)

Total                            1,458,400

*Sales = 3,300,000 (2,000,000/2000*3,300)