Dobson Company Expects to Begin Operating on January 1 Sales Commissions Are Paid in Cash in the Month Following

question 141

Multiple Choice

Dobson Company expects to begin operating on January 1. The company's master budget contained the following operating expense budget: \begin{array}{lrrr}&\text { January}&\text { February}&\text { March }\\\text { Salary expenses } & \$ 40,000 & \$ 36,000 & \$ 36,000 \\\text { Sales commissions, } 5\%% \text { of sales } & 24,000 & 30,000 & 28,000 \\\text { Utilities } & 2,800 & 2,800 & 2,800 \\\text { Depreciation on store equipment } &1,800 & 1,800 & 1,800\\\text { Rent } & 7,200& 7,200& 7,200 \\\text { Miscellaneous } & \underline{ 1,800}& \underline{1,800}& \underline{1,800 }\\\text { operating expenses } & \underline{ \$ 77,600}& \underline{\$79,600}& \underline{\$77,600}\end{array}
Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of cash to be paid for operating expenses during the month of January is:

• A) $53,600.
• B) $51,800.
• C) $77,600.
• D) None of the answers are correct.

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Definitions:

Least-Costly Combination

An economic principle that describes the mix of factors of production (like labor and capital) that minimizes cost for a certain level of output.

MRPs

The marginal revenue product of labor refers to the increase in revenue a firm sees when adding one additional unit of labor, holding other factors constant.

Variable Resources

Factors of production such as labor, capital, and raw materials that can be adjusted in the short term to meet changes in demand or production.

Profit-Maximizing Level

The level of production at which a business achieves the highest possible profit.