The Prattle Corporation makes and sells only one product called a Deb. The company is in the process of preparing its Selling and Administrative Expense Budget for next year. The following budget data are available: All of these expenses (except depreciation) are paid in cash in the month they are incurred. If the company has budgeted to sell 16,000 Debs in February, then the total budgeted fixed selling and administrative expenses for February is:
A)$75,000
B)$70,000
C)$110,000
D)$100,000

Question

The Prattle Corporation makes and sells only one product called a Deb. The company is in the process of preparing its Selling and Administrative Expense Budget for next year. The following budget data are available:  All of these expenses (except depreciation) are paid in cash in the month they are incurred. If the company has budgeted to sell 16,000 Debs in February, then the total budgeted fixed selling and administrative expenses for February is:
A)$75,000 
B)$70,000 
C)$110,000 
D)$100,000

Quizplus · Accepted Answer

Fixed selling and administrative expenses do not change with the level of sales. Therefore, the total fixed selling and administrative expenses for the budget period remain constant. Based on the budget data, the total fixed selling and administrative expenses for the budget period is $1,320,000 ($600,000 + $720,000). To determine the total budgeted fixed selling and administrative expenses for February, we need to allocate this cost over the total number of Deb sales for the year, and then multiply by the budgeted sales for February.

Total number of Deb sales for the year = 100,000
Fixed selling and admin expenses per Deb = $13.20 ($1,320,000 ÷ 100,000 )
Budgeted Deb sales for February = 16,000

Total budgeted fixed selling and administrative expenses for February = Fixed selling and admin expenses per Deb x budgeted Deb sales for February
= $13.20 x 16,000
= $211,200

Therefore, the correct answer is C ($110,000).

The Prattle Corporation Makes and Sells Only One Product Called