Bloom's: Apply
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
145) Comparative income statements for Boggs Sports Equipment Company for the last two months are presented below:
July
August
Sales in units
11,000
10,000
Sales
$
165,000
$
150,000
Cost of goods sold
72,600
66,000
Gross margin
92,400
84,000
Selling and administrative expenses:
Rent
$
12,000
$
12,000
Sales commissions
$
13,200
$
12,000
Maintenance expenses
$
13,500
$
13,000
Clerical expense
$
16,000
$
15,000
Total selling and administrative expenses
$
54,700
$
52,000
Net operating income
$
37,700
$
32,000
All of the company's costs are either fixed, variable, or a mixture of the two (i.e., mixed). Assume that the relevant range includes all of the activity levels mentioned in this problem.
Which of the selling and administrative expenses of the company is variable?
A) Rent
B) Sales Commissions
C) Maintenance Expense
D) Clerical Expense
Answer: B
Explanation:
July
August
Percentage Change
Sales in units
11,000
10,000
-9.09%
Selling and administrative expenses:
Rent
12,000
12,000
0.00%
Sales commissions
13,200
12,000
-9.09%
Maintenance expenses
13,500
13,000
-3.70%
Clerical expense
16,000
15,000
-6.25%
Variable expenses are proportional to activity. In this case, sales commissions are the only selling and administrative expense that is proportional to unit sales.
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable costs, fixed costs, and mixed costs.
Bloom's: Apply
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
146) Tirri Corporation has provided the following information:
Cost per Unit
Cost per Period
Direct materials
$
6.85
Direct labor
$
3.90
Variable manufacturing overhead
$
1.25
Fixed manufacturing overhead
$
22,500
Sales commissions
$
1.00
Variable administrative expense
$
0.55
Fixed selling and administrative expense
$
7,500
If the selling price is $26.20 per unit, the contribution margin per unit sold is closest to:
A) $12.65
B) $6.65
C) $15.45
D) $9.70
Answer: A
Explanation:
Selling price per unit
$
26.20
Direct materials
$
6.85
Direct labor
3.90
Variable manufacturing overhead
1.25
Sales commissions
1.00
Variable administrative expense
0.55
Variable cost per unit sold