Question

Karma Company has prepared its operating budget for the first quarter of 20x9. The company forecasts sales of $50,000 in February, $60,000 in March, and $70,000 in April. Variable and fixed expenses are as follows:Variable:

Power cost (40% of Sales)
Miscellaneous expenses (5% of Sales)
Fixed:
Salary expense: $8,000 per month
Rent expense: $5,000 per month
Depreciation expense: $1,200 per month
Power cost/fixed portion: $800 per month
Miscellaneous expenses/fixed portion: $1,000 per month

How much is the total operating expense for January?
A) $38,500 B) $47,500 C) $41,700 D) $43,000

Answer 1

$38,500 is the total operating expense for January

Solution:

Jan Feb Mar

Sales Budget 50,000 60,000 70,000

Operating Expenses Budget Jan Feb Mar

Variable operating expenses:

Power cost (40% of sales) 20,000 24,000 28,000

Misc. expenses (5% of sales) 2,500 3,000 3,500

Fixed operating expenses:Salary expense 8,000 8,000 8,000

Rent expense 5,000 5,000 5,000

Depreciation expense 1,200 1,200 1,200

Power cost (40% of sales) 800 800 800

Misc. expense (fixed portion) 1,000 1,000 1,000

Total operating expenses 38,500 43,000 47,500