Lima Audio Systems has 10 sales representatives

 

Exercise

Lima Audio Systems has 10 sales representatives, each earning a salary of $30,000 per year plus a commission of $5 per speaker sold. Last year, 100,000 speakers were sold.

1. Develop a cost equation for total selling cost.

2. Compute the total variable selling cost last year.

3. Compute the total selling cost last year.

4. Compute the unit selling cost for last year.

5. What if 110,000 speakers had been sold last year? What would be the total selling cost? What would be the unit selling cost?

 

Solutions :

 

1.Cost equation for total selling cost  =  5Q + 3,00,000                            

Where Q is the total units sold during the year & 3,00,000 is the fixed costs incurred as salaries of a salesman during the year. 

5Q is the variable cost element & 3,00,000 (30000*10) is the fixed cost element in the                             
total selling cost.                            
                            
 

2.Total variable selling cost last year

= 1,00,000 units * $5

= $5,00,000                            
                            
 

3.Total selling cost last year

= 1,00,000 * $5 + 3,00,000 

= $8,00,000            
                            
 

4.Unit selling cost last year    

= Total selling cost / Number of units sold                             

= $8,00,000 / 1,00,000                            

= $8
 

                            
5.Total selling cost if 1,10,000 units are sold

= 1,10,000 * $5 + 3,00,000

= $5,50,000 + $3,00,000

= $8,50,000            

 

Unit selling cost at 1,10,000 units sales
= $8,50,000 / 1,10,000

= $7.7272