South Coast Appliance Store is a small company that has hired you to perform some management advisory services. The following information pertains to 2017 operations. Sales (6,000 microwave ovens) $6,000,000 Cost of goods sold 870,000 Store manager's salary per year 192,000 Operating costs per year 305,000 Advertising and promotion per year 40,000 Commissions (4.1% of sales) 246,000 What are the estimated total costs if South Coast's store expects to sell 8,900 units next year? A. $2,192,400 B. $4,104,950 C. $3,567,950 D. $901,900

The correct answer is A.

Explanation:

Giving the following information:

Sales (6,000nits*$1,000) $6,000,000

Cost of goods sold 870,000 (145 a unit)

Store manager's salary per year 192,000

Operating costs per year 305,000

Advertising and promotion per year 40,000

Commissions (4.1% of sales) 246,000

We will separate in variable and fixed costs:

Fixed costs:

Store manager's salary per year 192,000

Operating costs per year 305,000

Advertising and promotion per year 40,000

Variable costs:

COGS = 145*8,900 = 1,290,500

Commission = 0.041 * (8,900*1,000) = 364,900

Total costs = fixed costs + variable costs

Total costs = $2.192,400