Question

The Year 1 selling expense budget for Karin Corporation is as follows: Budgeted sales $2,500,000 Selling costs: Delivery expenses $25,000 Commission expenses 75,000 Advertising expenses 20,000 Office expenses 12,000 Miscellaneous expenses 30,000 Total $162,000 Delivery and commission expenses vary proportionally with budgeted sales in dollars. Advertising and office expenses are fixed. Miscellaneous expenses include $10,000 of fixed costs. The rest varies with budgeted sales in dollars. The Year 2 budgeted sales is $3,400,000. What will be the value for commission expenses in the Year 2 selling expense budget? Group of answer choices $102,000 $24,000 $48,000 $122,000

Answer 1

Answer:

The correct answer is A.

Explanation:

First, we need to separate the fixed from the variable components:

Fixed costs:

Advertising expenses 20,000

Office expenses 12,000

Miscellaneous expenses 10,000

Variable costs:

Delivery expenses $25,000

Commission expenses 75,000

Miscellaneous expenses 20,000

Total $120,000

Now, the proportion of variable costs to sales:

Total selling expense proportion= 120,000/2,500,000= 0.048

For each variable cost:

Delivery expenses= 25,000/120,000= 0.20

Commission expenses= 75,000/120,000=  0.63

Miscellaneous expenses= 20,000/120,000= 0.17

Finally, for $3,400,000 sales:

Total variable cost= 3,400,000*0.048= $163,200

Comissions= 0.63*163,200= $102,816