Question

Assume the following information for a merchandising company:

Contribution margin: $104,000
Variable selling expenses: $25,000
Net operating income: $30,000
Fixed administrative expenses: ?
Fixed selling expenses: $40,000
Variable administrative expenses: $5,000
What is the amount of fixed administrative expenses?

Answer 1

The fixed administrative expenses for the company are $4,000, calculated by using the provided figures for contribution margin, variable and fixed selling expenses, and net operating income.

Step-by-step explanation:

To calculate the fixed administrative expenses, we need to consider the provided financial information of the merchandising company. We know the contribution margin, which is the difference between sales and variable costs, is $104,000, and also the total variable costs are $25,000 for selling expenses and $5,000 for administrative expenses, summing up to $30,000. Using the formula Net Operating Income = Contribution Margin - Fixed Costs, we can find the fixed administrative expenses. Since the fixed selling expenses are given as $40,000, and the net operating income is $30,000, we solve the equation as follows:

$104,000 (Contribution Margin) - $30,000 (Variable Costs) - $40,000 (Fixed Selling Expenses) - Fixed Administrative Expenses = $30,000 (Net Operating Income)

First, we calculate the total fixed costs:

$104,000 - $30,000 - Fixed Administrative Expenses = $70,000

Therefore:

Fixed Administrative Expenses = $104,000 - $30,000 - $70,000

Fixed Administrative Expenses = $4,000

The amount of fixed administrative expenses is $4,000.