Use the following information to answer this question. Callaham Corporation is a

Question

Use the following information to answer this question.
Callaham 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 $115.80 per unit.
Sales volume (units)
4,000 5,000
Cost of sales $338,000 $422,500
Selling and administrative costs $89,600 $106,000
The best estimate of the total monthly fixed cost is


A. $24,000.

B. $427,600.

C. $478,050.

D. $528,500.

I'd really like to know how to get the answer more than anything. I'm not really sure where to start on this, I saw where someone had added the cost of sales and selling & administrative costs together, but then that gives me 2 answers and I can only choose one. Please show me how to get this. Thanks in advance!

Explanation / Answer

To calculate Fixed cost we have to know the variable cost per unit: Variable cost per unit sales (x): $338,000 + $89,600 - 4,000x = $422,500 + $106,200 - 5,000x 1,000x = $100,900 x = $100.9 Fixed cost estimated at the same volume of sales: $338,000 + $89,600 - 4,000 units (100.9) = $422,500 + $106,200 - 5,000 units (100.9) $427,600 - $403,600 = $528,500 - $504,500 $24,000 = $24,000 Fixed cost: $24,000

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