Final answer:
The total fixed cost of Elaine Co.'s shipping department for 2011 is $850,000, which includes guaranteed salaries and the annual lease for warehouse space.
Step-by-step explanation:
The fixed costs of the shipping department of Elaine Co. for 2011 can be calculated by adding the fixed costs for each category:
Salaries:
75% of employees are on guaranteed contracts, so the fixed cost for salaries is 75% of $800,000 which is $600,000.
Packaging:
Since the cost depends on the size of the item(s) shipped, it can be considered a variable cost and not included in the total fixed costs.
Postage:
Since the cost depends on the weight of the item(s) shipped, it can be considered a variable cost and not included in the total fixed costs.
Rent of warehouse space:
The fixed cost for rent is $250,000.
Adding up the fixed costs from salaries and rent, the total fixed cost of the shipping department is $600,000 + $250,000 = $850,000.
The question is asking to calculate the total fixed cost of the shipping department of Elaine Co. for the year 2011. To determine the total fixed cost, we need to identify which costs are fixed and not variable (i.e., costs that do not change with the level of output).
Salaries that are guaranteed under contract are considered fixed costs. Here, 75 percent of $800,000 in salaries are under guaranteed contracts, which equals $600,000. Additionally, the rent of warehouse space is a fixed cost of $250,000 annually. Packaging and postage costs depend on the size and weight of items shipped, respectively, and are therefore variable costs. Adding the two fixed costs together gives us $600,000 (75 percent of salaries) + $250,000 (rent) = $850,000.