Question

Gambino 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 $153.60 per unit.Sales volume (units) 6,200 7,200Cost of sales $ 435,860 $ 506,160Selling and administrative costs $ 430,400 $ 441,400The best estimate of the total monthly fixed cost is:____________

Answer 1

Answer:

The best estimate of the total monthly fixed cost can be calculated by dividing the monthly fixed costs by the number of units sold

Explanation:

Fixed costs can be defined as expenses that the company has to make consistently to be able to keep producing.

To find the monthly fixed cost, first we need to find the total fixed cost. Cost of sales represents the cost that the company pays to produce the product, which can be material or labour. So cost of sales is not included in the total fixed cost.

Which mean that $ 430,400 and $ 441,400 are the fixed costs for each month.

The best estimate of the total monthly fixed cost can be calculated by dividing the monthly fixed costs by the number of units sold and the results are $69.41 and $61.30

I hope this answer helps.

Answer 2

Answer:

Total monthly fixed cost = $293,600

Explanation:

using the high and low methods, we can work out the fixed cost as follows:

The total monthly fixed cost = administrative fixed cost + cost of sales fixed cost

Selling and Administrative cost

Fixed cost = Total cost - (variable cost per unit × number of units)

Variable cost per unit = 430,400 - 411,400/(7200-6200) units= 19

Fixed cost = 430.400- (19*7200) = $293,600

cost of sales

Variable cost per unit = (506160-435860)/(7200-6200) units=70.3

Fixed costs = 506160- (70.3  × 7,200) = 0

Total monthly fixed cost = $293,600