Question

Call Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $140.50 per unit. Sales volume (units).............................................. 6,000 7,000 Cost of sales.......................................................... $497,400 $580,300 Selling, general, and administrative costs............. $273,600 $294,700 1. The best estimate of the total monthly fixed cost is:

Answer 1

Answer: $147,000

Step-by-step explanation:

Cost of sales is a variable cost.

Selling and administrative costs:

`Variable\ cost\ per\ unit=(Change\ in\ cost)/(Change\ in\ activity)`

`Variable\ cost\ per\ unit=(294,700-273,600)/(7,000-6,000)`

`Variable\ cost\ per\ unit=(21,100)/(1,000)`

= $21.10 per unit

Fixed cost = Total cost - Variable cost element

= $294,700 - ($21.10 per unit × 7,000 units)

= $294,700 - $147,700

= $147,000