Reference: 06-02
Comparative income statements for Boggs Sports Equipment Company for the last two months are presented below: $$\begin{array} { | l | l | l | }
\hline & \text { July } & \text { August } \
\hline \text { Sales in Units } & 11,000 & 10,000 \
\hline & & \
\hline \text { Sales Revenue } & \$ 165,000 & \$ 150,000 \
\hline \text { Less Cost of Goods Sold } & 72,600 & 66,000 \
\hline \text { Gross Margin } & 92,400 & 84,000 \
\hline \text { Less Operating Expenses: } & & \
\hline \text { Rent } & 12,000 & 12,000 \
\hline \text { Sales Commissions } & 13,200 & 12,000 \
\hline \text { Maintenance Expenses } & 13,500 & 13,000 \
\hline \text { Clerical Expense } & 16,000 & 15,000 \
\hline \text { Total Operating Expenses } & 54,700 & 52,000 \
\hline \text { Net income } & \$ 37,700 & \$ 32,000 \
\hline
\end{array}$$ All of the company's costs are either fixed, variable, or a mixture of the two (i.e., mixed). The company is a merchandising company. Assume that the relevant range includes all of the activity levels mentioned in this problem.
-The total monthly fixed cost for Boggs Sports Equipment Company is?
A)$12,000.
B)$25,000.
C)$40,000.
D)$22,500.

Question

Reference: 06-02
Comparative income statements for Boggs Sports Equipment Company for the last two months are presented below: $$\begin{array} { | l | l | l | } 
\hline & \text { July } & \text { August } \
\hline \text { Sales in Units } & 11,000 & 10,000 \
\hline & & \
\hline \text { Sales Revenue } & \$ 165,000 & \$ 150,000 \
\hline \text { Less Cost of Goods Sold } & 72,600 & 66,000 \
\hline \text { Gross Margin } & 92,400 & 84,000 \
\hline \text { Less Operating Expenses: } & & \
\hline \text { Rent } & 12,000 & 12,000 \
\hline \text { Sales Commissions } & 13,200 & 12,000 \
\hline \text { Maintenance Expenses } & 13,500 & 13,000 \
\hline \text { Clerical Expense } & 16,000 & 15,000 \
\hline \text { Total Operating Expenses } & 54,700 & 52,000 \
\hline \text { Net income } & \$ 37,700 & \$ 32,000 \
\hline
\end{array}$$ All of the company's costs are either fixed, variable, or a mixture of the two (i.e., mixed). The company is a merchandising company. Assume that the relevant range includes all of the activity levels mentioned in this problem.
-The total monthly fixed cost for Boggs Sports Equipment Company is?
A)$12,000.
B)$25,000.
C)$40,000.
D)$22,500.

Quizplus · Accepted Answer

Fixed costs remain constant in total regardless of changes in activity level. Rent is a fixed cost at $12,000 each month. To find the total fixed costs, we need to identify other costs that did not change with the change in sales units. However, all other costs vary with sales, indicating they are either variable or mixed costs. To determine the total fixed costs, we analyze the behavior of the total operating expenses and the cost of goods sold in relation to sales. The change in sales revenue from July to August is $15,000, with a corresponding change in cost of goods sold of $6,600 and a change in total operating expenses of $2,700. Since rent is the only cost explicitly stated as fixed and remains constant at $12,000, and no other cost remains constant, we must deduce the fixed portion from the mixed costs. Without specific information on how each of the other costs varies, we cannot accurately break down the mixed costs into their fixed and variable components based solely on the information provided. Therefore, the assumption that rent is the only clearly identified fixed cost leads to an incorrect conclusion. The correct approach involves analyzing the behavior of costs in relation to changes in activity levels to identify the fixed component of mixed costs. Given the data does not allow for this precise breakdown beyond the fixed rent, the question seems to aim at identifying the explicit fixed cost presented, which is misleading based on the provided explanation. Thus, the correct identification of total fixed costs requires additional information or a different analytical approach.

Reference: 06-02 Comparative Income Statements for Boggs Sports Equipment Company

Reference: 06-02
Comparative Income Statements for Boggs Sports Equipment Company