Question

Mocha International Company [MIC], makes and sells only one product, Product TW. The maximum capacity is 50,000 units. The company is in the process of preparing its Selling and Administrative Expense Budget for the last half of the year.

The following budget data are available:

Variable Cost
	Per Unit Sold	Monthly Fixed Cost
Sales Commissions	$1.70
Shipping	$1.10
Advertising	$0.20	$15,000
Executive Salaries	-	$45,000
Depreciation on Office Equipment	-	$11,000
Other – all cash/payables	$0.20	$18,000

Estimated Bad debts –         2% of credit sales - Average monthly credit sales for the last half of the year - $75,000) [Treat as a non-cash Fixed cost]

All cash expenses are paid in cash in the month for which they are incurred.

QUESTIONS

A. If the company has budgeted to sell 35,000 units of Product SW in July, what will be the total budgeted selling and administrative expenses for July?                                             
B. If the company has budgeted to sell 35,000 units of Product SW in October, what will be the total budgeted variable selling and administrative expenses for October?

C. If the budgeted cash disbursements for selling and administrative expenses for November total $125,250, then how many units of Product SW does the company
plan to sell in November (rounded to the nearest whole unit)?

D. If the company has budgeted to sell 40,000 units of Product SW in September, what will be the total budgeted fixed selling and administrative expenses for the month?

september?

Answer 1

A.
	Per Unit Sold	Monthly Fixed Cost	Variable Cost = cost per unit x units sold
Sales Commissions	$1.70		$   59,500.00
Shipping	$1.10		$   38,500.00
Advertising	$0.20	$ 15,000.00	$     7,000.00
Executive Salaries		$ 45,000.00
Depreciation on Office Equipment		$ 11,000.00
Other – all cash/payables	$0.20	$ 18,000.00	$     7,000.00
Total Cost	$3.20	$ 89,000.00	$ 112,000.00
Total budgeted selling and administrative expenses = Variable cost + Fixed cost = 112,000 + 89000	$        201,000.00
b)
Total budgeted variable selling and administrative expenses = Variable cost per unit ×  Units sold = $3.20 x 35000 units	$112,000.00
c)
Cash disbursements = Variable cost + (Fixed cost − Depreciation)
125,250 = ($3.20 x units sold + $89,000 -11000)
125,250 = ($3.20 x units sold + $78,000)
Units sold = ($125,250 − $78,000) ÷ $3.20
Units sold = $47,250 ÷ $3.20
Units sold	14,766	units
d)
	Per Unit Sold	Monthly Fixed Cost	Variable Cost = cost per unit x units sold
Sales Commissions	$1.70		$   68,000.00
Shipping	$1.10		$   44,000.00
Advertising	$0.20	$ 15,000.00	$     8,000.00
Executive Salaries		$ 45,000.00
Depreciation on Office Equipment		$ 11,000.00
Other – all cash/payables	$0.20	$ 18,000.00	$     8,000.00
Total Cost	$3.20	$ 89,000.00	$ 128,000.00
Total budgeted selling and administrative expenses = Variable cost + Fixed cost = 128000 + 89000	$        217,000.00