Question

A small retail store has hired you to perform some management advisory services. The following information pertains to the current week operations.

	$
Sales (60 units)	12,000
Cost of goods sold	1,680
Commissions (4% of sales)	480
Store staff's salary per week	3,000
Advertising and promotion per week	500
Other operating costs per week	1,000

A) What are the estimated total fixed costs if the store expects to sell 80 units next week?

B) What are the estimated total variable costs if the store expects to sell 80 units next week?

Answer 1

Answer :(a.) Calculation of Estimated Fixed Cost for next week :

Fixed Cost are Cost which remain fixed irrespective of the number of units

Estimated Fixed Cost = Store staff's salary per week + Advertising and promotion per week + Other operating costs per week

= 3000 + 500 + 1000

= 4500

(b.) Calculation of Variable Cost

Variable Cost are cost that changes with change in level of output .

Cost of Goods sold per unit = 1680 / 60 = 28

Cost og Goods sold fro 80 units = 28 * 80 = 2240

Sales per unit = 12000 / 60 = 200

Commision = (80 * 200) * 4% = 640

Total Variable Cost = 2240 + 640 = 2880