Question 21 (4 points) L Company has the following data: Mar Apr May Sales (in u

Question

Question 21 (4 points) L Company has the following data: Mar Apr May Sales (in units) mission Salaries expense ty expense 24,000 18,000 20,000 expense $24,000$18,000 $20,000 30,000 30,000 30,000 7,200 5,700 6,200 2,100 2,100 2,100 Depreciation expse 4,400 4,400 4,400 nsurance expense Which of the following statements is true? 1) The only variable expense is commission expense. O 2) All of the expenses are variable expenses. 3) There are no mixed expenses. O4) If sales in June are $175,000, depreciation expense will be more than $4,400 Save Question 22 (4 points) Total fixed costs will O 1) remain the same as production levels change 2) decrease as production decreases 3) increase as production decreases 4) increase as production increases Save

Explanation / Answer

Solution - 21:

On review of company data we have observed following:

1. Commission expense is changed according to sales volume. Commission expenses is incurred $1 per unit. Hence commission expense is variable expense.

2. Salaries, insurance and depreciation expense in same in each month. Hence these are fixed cost

3. Utility expense is varying according to sales volume but not in same proportion, hence there is some variable and fixed part in utility expense. Let variable utility expense is X per unit and F is the fixed utility cost then

24000X + F = 7200

18000X + F = 5700

by solving both equation, X = $0.25 per unit and F = $1,200

Hence utility expense is mixed expense

From above analysis we can say that statement no1 "The only variable expense is commission expense" is true.

Solution - 22

Total fixed cost remain the same as production level change (Either increase or decrease). The fixed cost always remain constant.

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