Question

1. Genend’s Good Value Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 2015 operations.

Sales (6,000 microwave ovens)	$1,740,000
Cost of goods sold	960,000
Store manager’s salary per year	100,000
Operating costs per year	250,000
Advertising and promotion per year	30,000
Commissions (3% of sales)	52,200

What are the estimated total costs if Genend’s store expects to sell 8,000 next year?

1. $1,952,200
2. $380,450
3. $812,117
4. $1,729,600
5. None of the above

Answer 1

Correct answer------------(d) $1,729,600

Working

		Units sold
	Working	8000
Variable cost of goods sold	[960000/6000 x 8000]	$ 1,280,000.00
Variable sales commission	(1740000/6000*8000)*3%	$        69,600.00
Total variable cost		$ 1,349,600.00
Fixed costs
Store manager’s salary per year		$    100,000.00
Operating costs per year		$    250,000.00
Advertising and promotion per year		$        30,000.00
Total fixed cost		$    380,000.00
Total cost		$ 1,729,600.00