Reference: 06-10
The following data have been provided by a retail company that sells a single product. $$\begin{array} { | l | l | l | }
\hline & \text { This Year } & \text { Last Year } \
\hline \text { Units sold } & 200,000 & 150,000 \
\hline \text { Sales revenue } & \$ 1,000,000 & \$ 750,000 \
\hline \text { Less cost of goods sold } & 700,000 & 525,000 \
\hline \text { Gross margin } & 300,000 & 225,000 \
\hline \text { Less operating expenses } & 222,000 & 210,000 \
\hline \text { Net income } & \$ 78,000 & \$ 15,000 \
\hline
\end{array}$$
-What is the best estimate of the company's total fixed operating expenses per year
A)$0.
B)$174,000.
C)$44,000.
D)$80,000.

Question

Reference: 06-10
The following data have been provided by a retail company that sells a single product. $$\begin{array} { | l | l | l | } 
\hline & \text { This Year } & \text { Last Year } \
\hline \text { Units sold } & 200,000 & 150,000 \
\hline \text { Sales revenue } & \$ 1,000,000 & \$ 750,000 \
\hline \text { Less cost of goods sold } & 700,000 & 525,000 \
\hline \text { Gross margin } & 300,000 & 225,000 \
\hline \text { Less operating expenses } & 222,000 & 210,000 \
\hline \text { Net income } & \$ 78,000 & \$ 15,000 \
\hline
\end{array}$$
-What is the best estimate of the company's total fixed operating expenses per year
A)$0.
B)$174,000.
C)$44,000.
D)$80,000.

Quizplus · Accepted Answer

Fixed operating expenses can be estimated by analyzing the change in operating expenses relative to the change in gross margin. The gross margin increased by $75,000 (from $225,000 to $300,000), while operating expenses increased by $12,000 (from $210,000 to $222,000). If we assume all other costs are variable and directly tied to sales, the fixed portion of the operating expenses would be the total operating expenses minus the variable portion. Since operating expenses increased by less than the gross margin, it suggests that the increase in operating expenses is not fully variable. The fixed operating expenses can be estimated by subtracting the variable portion from the total operating expenses in either year, assuming the variable portion is proportional to the gross margin increase. Given the data does not provide a direct method to calculate variable costs, we estimate fixed costs by recognizing that the majority of the operating expenses are likely fixed, as the increase in gross margin does not correspond directly to the increase in operating expenses. The closest estimate given the options and without a direct method to calculate variable operating expenses from the provided data is $174,000, acknowledging that this is an estimation challenge without clear guidance on the variable portion of the operating expenses.

Reference: 06-10 the Following Data Have Been Provided by a Retail

Reference: 06-10
the Following Data Have Been Provided by a Retail