Question

Kearney Company, operating at full capacity, sold 400,000 units at a price of $246.60 per unit during 20Y5. Its income statement for 20Y5 is as follows:

Sales $ 98,640,000
Cost of goods sold (44,500,000)
Gross profit $ 54,140,000
Expenses:
Selling expenses $8,000,000
Administrative expenses 3,000,000
Total expenses (11,000,000)
Income from operations $ 43,140,000

The division of costs between fixed and variable is as follows:
Fixed Variable
Cost of good sold 28% 72%
Selling expenses 25% 75%
Administrative expenses 80% 20%

Management is considering a plant expansion program that will permit an increase of $8,631,000 (35,000 units at $246.60) in yearly sales. The expansion will increase fixed costs by $3,600,000 but will not affect the relationship between sales and variable costs.

Determine for 20Y5 the total fixed costs and the total variable costs.

Answer 1

Total fixed costs = $16,860,000

Total variable costs = $38,640,000

Step-by-step explanation:

The computation of Total fixed cost and total variable cost is shown below:-

Total fixed costs = Cost of goods sold + Selling expense + Administrative expense

= (28% × $44,500,000) + (25% × $8,000,000) + (80% × $3,000,000)

= $12,460,000 + $2,000,000 + $2,400,000

= $16,860,000

Total variable costs = Cost of goods sold + Selling expense + Administrative expense

= (72% × $44,500,000) + (75% × $8,000,000) + (20% × $3,000,000)

= $32,040,000 + $6,000,000 + $600,000

= $38,640,000