Virginia Company, a merchandising firm, operated five sales offices last year at a total cost of $500,000, of which $70,000 represented fixed costs. Virginia has determined that total costs are significantly influenced by the number of sales offices operated. Last year's costs and number of sales offices can be used as the basis for predicting annual costs. What would be the budgeted cost for the coming year if Virginia were to operate seven sales offices? (CPA adapted)

Question

Quizplus · Accepted Answer

The variable cost per sales office is ($500,000 - $70,000) / 5 = $86,000. For seven offices, the cost would be $70,000 (fixed) + 7 * $86,000 (variable) = $672,000.

Virginia Company, a Merchandising Firm, Operated Five Sales Offices Last