It is time to develop a budget for marketing department activities for the next year. Your team is looking over the following costs.: Office rent
Sales commissions
Promotional budget
Product development costs
Office supplies
The finance department has recently told you that you have $3,000 to spend on office supplies. You cannot go beyond this no matter what changes happen in the marketing department. Your salespeople get a flat 15% sales commission on anything they sell. With this in mind, which of these costs are variable costs?
A)Office rent, sales commissions, promotional budget, product development costs, office supplies
B)Office rent, promotional budget, and office supplies
C)Sales commissions, promotional budget, and product development costs
D)Sales commissions, product development costs, office supplies
E)Promotional budget and office supplies

Question

Quizplus · Accepted Answer

Variable costs are those that change in proportion to the level of activity. Office rent is likely a fixed cost, as the rent amount is most likely based on a long-term lease or contract. The $3,000 for office supplies is also a fixed cost. Sales commissions and product development costs are both variable costs, as they increase or decrease based on sales performance and the amount spent on developing new products. The promotional budget could be either a fixed or variable cost depending on how it is structured, but since it is the only option in this answer choice, we can assume it is a variable cost.

It Is Time to Develop a Budget for Marketing Department