A company wants to determine its marketing costs for budgeting purposes. Activity measures and costs incurred for four months of the current year are presented in the table below. Advertising is considered to be a discretionary cost. Salespersons are paid monthly salaries plus commissions. The sales force was increased from 20 to 21 individuals during the month of May.

 A company wants to determine its marketing costs for budgeting purposes. Activity measures and costs incurred for four months of the current year are presented in the table below. Advertising is considered to be a discretionary cost. Salespersons are paid monthly salaries plus commissions. The sales force was increased from 20 to 21 individuals during the month of May.



Activity measures    March    April    May    June
Sales orders    2,000    1,800    2,400    2,300
Units sold    55,000    60,000    70,000    65,000
Dollar sales    $1,150,000    $1,200,000    $1,330,000    $1,275,000
Marketing costs                
Advertising    $ 190,000    $ 200,000    $ 190,000    $ 190,000
Sales salaries    20,000    20,000    21,000    21,000
Commissions    23,000    24,000    26,600    25,500
Shipping costs    93,000    100,000    114,000    107,000
Total costs    $ 326,000    $ 344,000    $ 351,600    $ 343,500


In relation to the dollar amount of sales, which of the following cost classifications is appropriate for advertising and sales salaries costs?




 You Answered Correctly!
This answer is correct. The classification of the costs is appropriate in this alternative. The advertising is the same for three of the four months and would be considered a fixed cost in terms of dollar sales. (The April amount of $200,000 would be considered a discretionary increase.) Sales salaries appear to vary by $1,000 per salesperson, but in terms of dollar sales, this would be considered a fixed cost.