Marketing question.

Question

1) The Comfy Chair Company makes reclining chairs at its plant and sells them exclusively through its own retail store. It has the following expenses:
Plant rent and taxes = $13,000.00
Office and management expenses = $180,000.00
Machinery and equipment purchased = $100,000.00
Direct materials = $23.00/chair
Direct labour = 4 hours/chair @ $12.00/hour
Transportation = $7.00/chair
Commercial store front unit purchase = $550,000.00
Advertising costs = $110,000.00
Sales staff wages before commissions = $250,800.00
Commission = $13.00/chair

(a) Identify the Comfy Chair Company’s variable costs.

Is the answer 55?

Answer 1

Direct Materials, Direct Labour, Transportation, and Commission costs are variable, as they all depend on how many chairs are produced.  I assume all other costs are annual.  You can't determine a set amount for variable costs, since (by definition) they are variable.  You could say that the variable cost = $23 + $48 + $7 + $13 = $91 per chair produced.  I think you got the $55 figure from adding 23 + 12 + 7 + 13 but the labor cost is $48 not 12, since it takes 4 hours to make a chair.

 

Hope that helps.