Karma Company has prepared its operating budget for the first quarter of 20x9. The company forecasts sales of $50,000 in February, $60,000 in March, and $70,000 in April. Variable and fixed expenses are as follows:

Variable:
Power cost (40% of Sales)
Miscellaneous expenses (5% of Sales)
Fixed:
Salary expense: $8,000 per month
Rent expense: $5,000 per month
Depreciation expense: $1,200 per month
Power cost/fixed portion: $800 per month
Miscellaneous expenses/fixed portion: $1,000 per month

How much is the total operating expense for January?

A) $38,500 B) $47,500 C) $41,700 D) $43,000

$38,500 is the total operating expense for January

Solution:

                                                                        Jan         Feb          Mar

Sales Budget                                               50,000    60,000   70,000

Operating Expenses Budget                          Jan         Feb        Mar

Variable operating expenses:

Power cost (40% of sales)                           20,000   24,000   28,000

Misc. expenses (5% of sales)                       2,500      3,000      3,500

Fixed operating expenses:Salary expense  8,000     8,000     8,000

Rent expense                                                5,000     5,000      5,000

Depreciation expense                                  1,200       1,200       1,200

Power cost (40% of sales)                              800         800         800

Misc. expense (fixed portion)                        1,000       1,000      1,000

Total operating expenses                           38,500    43,000    47,500

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