(Appendix 5A) Callander 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 $140.50 per unit.

-The best estimate of the total monthly fixed cost is:
A) $875,000
B) $147,000
C) $771,000
D) $823,000

Question

(Appendix 5A) Callander 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 $140.50 per unit.
 
-The best estimate of the total monthly fixed cost is:
A) $875,000 
B) $147,000 
C) $771,000 
D) $823,000

Quizplus · Accepted Answer

Cost of sales is a variable cost.
Selling and administrative costs:
Variable cost per unit = Change in cost ÷ Change in activity
= ($294,700 - $273,600) ÷ (7,000 units - 6,000 units)
= $21,100 ÷ 1,000 units
= $21.10 per unit
Fixed cost = Total cost - Variable cost element
= $294,700 - ($21.10 per unit × 7,000 units)
= $294,700 - $147,700
= $147,000

(Appendix 5A) Callander Corporation Is a Wholesaler That Sells a Single