Final answer:
To prepare the selling and administrative expense budget for Shep Company, calculate the total sales in dollars, then apply the variable cost rates to obtain the variable expenses. Sum the fixed costs to get the total fixed expenses. Finally, add the total variable and fixed expenses to find the total selling and administrative expenses for the quarter, which are $124,000.
Step-by-step explanation:
To prepare a selling and administrative expense budget for Shep Company for the first quarter of 2016, we'll follow these steps:
Calculate the total sales in dollars by multiplying the number of units sold by the unit selling price.
For each variable cost, calculate the expense by applying the variable cost rate to the total sales in dollars.
Sum the fixed costs to get the total fixed expenses for the quarter.
Add the total variable expenses and the total fixed expenses to get the total selling and administrative expenses for the quarter.
Let's start the calculations:
Total sales in dollars = 20,000 units × $30/unit = $600,000
Variable costs:
Sales commissions = 6% of $600,000 = $36,000
Delivery expense = 2% of $600,000 = $12,000
Advertising = 4% of $600,000 = $24,000
Fixed costs (summed):
Sales salaries = $24,000
Office salaries = $19,000
Depreciation = $6,000
Insurance = $2,000
Utilities = $1,000
Total fixed costs = $24,000 + $19,000 + $6,000 + $2,000 + $1,000 = $52,000
Therefore, the total selling and administrative expenses for the first quarter are:
Total variable expenses = $36,000 + $12,000 + $24,000 = $72,000
Total selling and administrative expenses = Total variable expenses + Total fixed costs = $72,000 + $52,000 = $124,000