EZ Financing Inc. has prepared the operating budget for the first quarter of 201

Question

EZ Financing Inc. has prepared the operating budget for the first quarter of 2015. They forecast sales of $50,000 in January, $60,000 in February, and $70,000 in March. Variable and fixed expenses are as follows:

Variable: Power cost (40% of Sales)

Miscellaneous expenses: (5% of Sales)

Fixed: Salary expense: $8,000 per month

Rent expense: $5,000 per month

Depreciation expense: $1,200 per month

Power cost/fixed portion: $800 per month

Miscellaneous expenses/fixed portion: $1,000 per month

Calculate total selling and administrative expenses for the month of January.

A) $38,500

B) $47,500

C) $41,700

D) $43,000

Explanation / Answer

Calculation of Selling and administration expenses for the month of January

Variable Expenses

Power cost = 40% of $50,000 = $20,000

Miscellaneous Expenses = 5% of 50,000 = $2,500

Fixed Expenses   

Salary Expenses = $8,000

Rent Expenses = $5,000

Depritiation Expenses = $1,200

Power Cost = $800

Miscellaneous Expenses = $1,000

Total Selling and Administrative Expenses = $38,500

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