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von Max H.


Assume the cost object is the company’s various sales representatives. Furthermore, assume that the company spent $50,000 of its total fixed selling expense on advertising and the remainder of the total fixed selling expense comprised the fixed portion of the company’s sales representatives’ compensation.


a. When the company sells 20,000 units, what is the total direct selling expense that can be readily traced to individual sales representatives?


b. When the company sells 20,000 units, what is the total indirect selling expense that cannot be readily traced to individual sales representatives?


3. Assume the cost object is the company’s various sales representatives:

  • The company spends $50,000 of its total fixed selling expense on advertising.

  • The remainder of the fixed selling expense is the fixed portion of the sales representatives’ compensation.

3a. When the company sells 20,000 units, what is the total direct selling expense that can be readily traced to individual sales representatives?

Direct selling expenses include:

  • Sales commissions = $1.00 per unit

For 20,000 units:

  • Sales commissions = 20,000 units × $1.00 = $20,000

The fixed portion of sales representatives’ compensation is also a direct cost, calculated as:

  • Total fixed selling expense

    = $3.50 per unit × 20,000 units = $70,000

  • Fixed selling expense on advertising = $50,000

  • Fixed compensation to sales representatives

    = $70,000 - $50,000 = $20,000

Total direct selling expense

= $20,000 (sales commissions) + $20,000 (fixed compensation) = $40,000


3b. When the company sells 20,000 units, what is the total indirect selling expense that cannot be readily traced to individual sales representatives?

The only indirect selling expense is the fixed advertising expense:

  • Indirect selling expense = $50,000


Author

Max H.

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