Multiple Choice
If a company averages 55 sales per day and each sale is worth \$20, what is the company's net sales for a 30-day month, assuming there are no returns, allowances, or discounts?
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4. Merchandising Operations
Net Sales
Multiple Choice
On the income statement, which of the following would be classified as a variable cost?
A
Salaries of company executives
B
Depreciation expense on office equipment
C
Sales commissions based on units sold
D
Rent expense for administrative offices
Verified step by step guidance1
Understand the concept of variable costs: Variable costs are expenses that change in proportion to the level of activity or production. They increase or decrease depending on the number of units produced or sold.
Analyze each option provided in the problem: Salaries of company executives are typically fixed costs because they do not vary with production or sales levels. Depreciation expense on office equipment is also a fixed cost as it is based on the allocation of the asset's cost over time, regardless of activity levels.
Focus on the correct answer: Sales commissions based on units sold are classified as variable costs because they directly depend on the number of units sold. If more units are sold, the total sales commission increases; if fewer units are sold, the total sales commission decreases.
Evaluate the remaining option: Rent expense for administrative offices is generally considered a fixed cost because it does not fluctuate with production or sales levels. It is a recurring expense that remains constant over a period.
Conclude the classification: Sales commissions based on units sold are the only variable cost among the options provided, as they align with the definition of costs that vary with activity levels.
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