The following income statements are provided for Li Company's last two years of operation: Assuming that cost behavior did not change over the two year period, what is the company's annual fixed general, selling, and administrative cost?
A) $6,500
B) $6,000
C) $3,000
D) $2,500

Question

The following income statements are provided for Li Company's last two years of operation:  Assuming that cost behavior did not change over the two year period, what is the company's annual fixed general, selling, and administrative cost?
A) $6,500 
B) $6,000 
C) $3,000 
D) $2,500

Quizplus · Accepted Answer

To find the annual fixed general, selling, and administrative cost, we need to calculate the difference between the total cost and variable cost for each year. From the income statements provided, we can see that the total cost for both years is $37,000 and $43,000, respectively. The variable cost for both years is $11,000 and $16,000, respectively. Therefore, the annual fixed general, selling, and administrative cost is:

Year 1: $37,000 - $11,000 = $26,000
Year 2: $43,000 - $16,000 = $27,000

To find the average annual fixed cost, we add these amounts and divide by two:

($26,000 + $27,000) / 2 = $26,500

Therefore, the closest choice is B: $6,000.

The Following Income Statements Are Provided for Li Company's Last