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Call Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $140.50 per unit. Sales volume (units).............................................. 6,000 7,000 Cost of sales.......................................................... $497,400 $580,300 Selling, general, and administrative costs............. $273,600 $294,700 1. The best estimate of the total monthly fixed cost is:

Answer :

Answer:  $147,000

Explanation:

Cost of sales is a variable cost.

Selling and administrative costs:

[tex]Variable\ cost\ per\ unit=\frac{Change\ in\ cost}{Change\ in\ activity}[/tex]

[tex]Variable\ cost\ per\ unit=\frac{294,700-273,600}{7,000-6,000}[/tex]

[tex]Variable\ cost\ per\ unit=\frac{21,100}{1,000}[/tex]

                                              = $21.10 per unit

Fixed cost = Total cost - Variable cost element

                 = $294,700 - ($21.10 per unit × 7,000 units)

                 = $294,700 - $147,700

                 = $147,000

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