Costs Per Unit Total Variable costs 1860 372000 Step costs 4

Costs

Per Unit

Total

Variable costs

$18.60

$372,000

Step costs

4.25

85,000

Fixed costs

8.80

176,000

Total selling and

administrative costs

$31.65

$633,000

A company’s selling and administrative costs for the month of August, when it sold 20,000 units, were as follows.

Costs

Per Unit

Total

Variable costs

$18.60

$372,000

Step costs

4.25

85,000

Fixed costs

8.80

176,000

Total selling and

administrative costs

$31.65

$633,000

The variable costs represent sales commissions paid at the rate of 6.2% of sales. The step costs depend on the number of salespersons employed by the company. In August there were 17 persons on the sales force. However, two members have taken early retirement effective August 31. It is anticipated that these positions will remain vacant for several months. Total fixed costs are unchanged within a relevant range of 15,000 to 30,000 units per month. The company is planning a sales price cut of 10%, which it expects will increase sales volume to 24,000 units per month. If the company implements the sales price reduction, the total budgeted selling and administrative costs for the month of September would be

$652,760

$679,760

$714,960

$759,600

August sale = 372000*100/6.2 = 6000000

Sale price per unit = 6000000/20000 = 300 per unit

September sales = 300*90%*24000 = 6480000

Variable cost = 6480000*6.2% = 401760

Fixed cost = 176000

Step cost = 85000/17*15 = 75000

So total budgeted selling and administrative cost :

So answer is a) $652760

Variable cost	401760
Stepd cost	176000
Fixed cost	75000
Total budgeted selling and administrative cost	652760

Costs Per Unit Total Variable costs $18.60 $372,000 Step costs 4.25 85,000 Fixed costs 8.80 176,000 Total selling and administrative costs $31.65 $633,000 A com

Costs Per Unit Total Variable costs 1860 372000 Step costs 4

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