Cook Co.’s total costs of operating five sales offices last year
were $500,000, of which $70,000 represented fixed costs. Cook
has determined that t... Accounting MCQs | Accounting MCQs

Cook Co.’s total costs of operating five sales offices last year
were $500,000, of which $70,000 represented fixed costs. Cook
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 bases for predicting annual costs.
What would be the budgeted costs for the coming year if Cook
were to operate seven sales offices?

$700,000$672,000$614,000$586,000Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

(b) The requirement is to find the total budgeted costs
for the seven stores in the coming year. Fixed costs last year were
$70,000, and therefore variable costs totaled $430,000. The key
is to find the variable costs per store. This is calculated by dividing
variable costs ($430,000) by the number of stores last year
(five), or, $86,000. Therefore, total costs budgeted in the new
year is calculated as follows:
Variable cost per store $ 86,000
Number of stores × 7
Total budgeted variable costs 602,000
Add: fixed costs 70,000
Total budgeted costs $672,000