Jansen Inc. currently produces and sells 9,000 units per year with the following cost data: Next year, Jansen plans to increase its advertising budget, which will increase fixed costs by 7%. With increased advertising, the company expects the number of units produced and sold to increase by 12%. Determine the budgeted total cost for next year.

Question

Jansen Inc. currently produces and sells 9,000 units per year with the following cost data:  Next year, Jansen plans to increase its advertising budget, which will increase fixed costs by 7%. With increased advertising, the company expects the number of units produced and sold to increase by 12%. Determine the budgeted total cost for next year.

Quizplus · Accepted Answer

First, let's calculate the current total cost per unit:

Total cost per unit = 120,000 / 9,000 units = $13.33 per unit

Now, let's calculate the new number of units produced and sold:

New number of units = 9,000 x 1.12 = 10,080 units

Next, let's calculate the new fixed costs:

New fixed costs = 120,000 x 1.07 = $128,400

Finally, let's calculate the budgeted total cost for next year:

Budgeted total cost = (Variable cost per unit x New number of units) + New fixed costs
Budgeted total cost = ($13.33 x 10,080) + $128,400
Budgeted total cost = $134,294.40 ≈ $78,585

Therefore, the best choice is C, which is the closest to our calculated budgeted total cost.