Question

Candle Central has 1,440 of total variable expense for a sales level of 600 units and 2,160 of total variable expense for a sales level of 900 units. If Candle Central sells 500 units, which of the following statements would be true?

1) The total variable expense for selling 500 units would be 960
2) The total variable expense for selling 500 units would be 1,200
3) The total variable expense for selling 500 units would be 1,440
4) The total variable expense for selling 500 units would be 1,680

Answer 1

The total variable expense for Candle Central to sell 500 units is calculated by finding the variable cost per unit ($2.40) and then multiplying by 500 units, which equals $1,200. Correct answer is option 2.

Step-by-step explanation:

First, let's calculate the variable cost per unit by noting the change in total variable cost with an increase in units sold. We know that at 600 units sold, Candle Central has a total variable expense of $1,440, and for 900 units, it's $2,160. The difference in units sold is 900 - 600 = 300 units.

The difference in total variable expense is $2,160 - $1,440 = $720. Dividing the increase in variable expense by the increase in units sold gives us the variable cost per unit, which is $720 ÷ 300 units = $2.40 per unit.

Now we can forecast the total variable expense for selling 500 units by multiplying the variable cost per unit ($2.40) by the number of units (500), which gives us 500 units * $2.40 = $1,200. Therefore, the total variable expense for selling 500 units would be $1,200.