Question

Ortmann Company, operating at full capacity, sold 1,000,000 units at a price of $188 per unit during the current year. Its income statement is as follows:

Sales $188,000,000
Cost of goods sold (100,000,000)
Gross profit $88,000,000
Expenses:
Selling expenses $16,000,000
Administrative expenses 12,000,000
Total expenses (28,000,000)
Operating income $60,000,000
The division of costs between variable and fixed is as follows:

Variable Fixed
Cost of goods sold 70% 30%
Selling expenses 75% 25%
Administrative expenses 50% 50%
Management is considering a plant expansion program for the following year that will permit an increase of $11,280,000 in yearly sales. The expansion will increase fixed costs by $5,000,000 but will not affect the relationship between sales and variable costs.

Determine the total variable costs and the total fixed costs for the current year.

Answer 1

The total variable cost is $88,000,000 .

The total fixed cost is $40,000,000.

Step-by-step explanation:

Cost of goods sold is $100,000,000.

Selling expenses is given as $16,000,000 .

Administrative expenses is given as $12,000,000.

Variable cost of goods sold is 70% of total cost of goods sold. While variable selling expenses is 75% of total selling expenses and variable administrative expenses is 50% of total administrative expenses.

Similarly, fixed cost of goods sold is 70% of total cost of goods sold. While fixed selling expenses is 75% of total selling expenses and fixed administrative expenses is 50% of total administrative expenses.

Total variable cost

`= 100,000,000\ *\ 70 \%\ +\ 16,000,000\ *\ 75 \%\ +\ 12,000,000\ *\ 50 \%`

= 70,000,000 + 12,000,000 + 6,000,000

=$88,000,000

Total fixed cost

`= 100,000,000\ *\ 30 \%\ +\ 16,000,000\ *\ 25 \% + 12,000,000\ *\ 50 \%`

= 30,000,000 + 4,000,000 + 6,000,000

=$40,000,000