Question

Gambarini Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $197.80 per unit. Sales volume (units)............... 6,000 7,000 Cost of sales.......................... $ 486,600 $ 567,700 Selling and administrative costs $ 612,600 $ 624,400 The best estimate of the total monthly fixed cost is:

Answer 1

$541,800

Step-by-step explanation:

Total cost of 6,000 units = $486,600 + $612,600 = $1,099,200

Total cost of 7,000 units = $567,700 + $624,400 = $1,192,200

Change in total cost = $1,192,200 - $1,099,200 = $92,900

Change in unit = 7,000 - 6,000 = 1,000

Variable cost per unit = Change in total cost/Change in unit = $92,900 / 1000 = $92.90

Using information on either 7,000 units or 6,000 units to calculate the variable cost, we have:

Total monthly Fixed Cost = Total Cost - Variable Cost = $1,099,200 - ($92.90 * 6,000) = $541,800