Comparative income statements for Boggs Sports Equipment Company for the last two months are presented below: All of the company's costs are either fixed, variable, or a mixture of the two (i.e., mixed) .Assume that the relevant range includes all of the activity levels mentioned in this problem. Which of the selling and administrative expenses of the company is variable?

A) Rent
B) Sales Commissions
C) Maintenance Expense
D) Clerical Expense

Question

Comparative income statements for Boggs Sports Equipment Company for the last two months are presented below:

All of the company's costs are either fixed, variable, or a mixture of the two (i.e., mixed) .Assume that the relevant range includes all of the activity levels mentioned in this problem. Which of the selling and administrative expenses of the company is variable?

A) Rent
B) Sales Commissions
C) Maintenance Expense
D) Clerical Expense

Dominique Dickey · Accepted Answer

Final Answer : B, Explanation :  A variable cost changes in proportion to changes in activity levels, while a fixed cost remains constant regardless of activity levels. Looking at the comparative income statements, we can see that the sales commissions expense varies directly with the level of sales revenue, indicating that it is a variable cost. The other selling and administrative expenses listed - Rent, Maintenance Expense, and Clerical Expense - do not seem to have a clear and consistent correlation with changes in activity levels, and therefore are not likely to be variable costs.   Variable expenses are proportional to activity.In this case, sales commissions are the only selling and administrative expense that is proportional to unit sales.

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