Gambino Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $138.80 per unit. $$\begin{array} { | l | r | r | }
\hline \text { Sales volume (units) } & 6,000 & 7,000 \
\hline \text { Cost of sales } & \$ 369,000 & \$ 430,500 \
\hline \text { Selling and administrative costs } & \$ 407,400 & \$ 418,600 \
\hline
\end{array}$$ The best estimate of the total monthly fixed cost is:
A)$776,400
B)$340,200
C)$812,750
D)$849,100

Question

Gambino Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $138.80 per unit. $$\begin{array} { | l | r | r | } 
\hline \text { Sales volume (units) } & 6,000 & 7,000 \
\hline \text { Cost of sales } & \$ 369,000 & \$ 430,500 \
\hline \text { Selling and administrative costs } & \$ 407,400 & \$ 418,600 \
\hline
\end{array}$$ The best estimate of the total monthly fixed cost is:
A)$776,400
B)$340,200
C)$812,750
D)$849,100

Quizplus · Accepted Answer

The fixed cost can be estimated by finding the difference in total costs at different sales volumes and dividing by the change in volume. The variable cost per unit is constant, so the fixed cost can be calculated as: Total cost at 6,000 units - (Variable cost per unit * 6,000 units). The variable cost per unit is ($430,500 - $369,000) / (7,000 - 6,000) = $61.50. Total cost at 6,000 units is $369,000 + $407,400 = $776,400. Fixed cost = $776,400 - ($61.50 * 6,000) = $340,200.

Gambino Corporation Is a Wholesaler That Sells a Single Product