Question

Comparative income statements for Boggs Sports Equipment Company for the last two months are presented below: July August Sales in units 11,000 10,000 Sales $ 165,000 $ 150,000 Cost of goods sold 72,600 66,000 Gross margin 92,400 84,000 Selling and administrative expenses: Rent $ 12,000 $ 12,000 Sales commissions $ 13,200 $ 12,000 Maintenance expenses $ 13,500 $ 13,000 Clerical expense $ 16,000 $ 15,000 Total selling and administrative expenses $ 54,700 $ 52,000 Net operating income $ 37,700 $ 32,000 All of the company's costs are either fixed, variable, or a mixture of the two (i.e., mixed). Assume that the relevant range includes all of the activity levels mentioned in this problem. Which of the selling and administrative expenses of the company is variable? Multiple Choice Rent Sales Commissions Maintenance Expense Clerical Expense

Answer 1

Answer:

Which of the selling and administrative expenses of the company is variable?

Answer: Sales has been decreased by 9.09% (-1,000 / 11,000 X 100) as compared to previous month. So, the expense which has been proportionally decreased is variable expense in nature.

Rent has been fixed during the months.

Sales commission has been decreased by 9.09% (-1,200 / 13,200 X 100)

Maintenance expense has been decreased by 3.7% (-500 / 13,500 X 100)

Clerical expense has been decreased by 6.25% (-1,000 / 16,000 X 100)

So, Sales commission expense is the variable expense in sales and administrative expenses.