A company budgets administrative salaries at $5,000 at a sales level of 1,000 units. At a sales level of 1,200 units, budgeted administrative salaries will be $

A company budgets administrative salaries at $5,000 at a sales level of 1,000 units. At a sales level of 1,200 units, budgeted administrative salaries will be $

• A. $6,000
• B. $5,000
• C. $5,500
• D. $4,500

Answer: (B)

Understanding cost behavior with fixed versus variable costs is the key idea here. Administrative salaries are typically fixed in the short run, meaning they don’t change with the level of production or sales within the relevant range. Since the budget allocates $5,000 for administrative salaries at a 1,000-unit level and there’s no indication of a step change or variable portion, the amount stays the same when volume rises to 1,200 units. So, the budgeted administrative salaries remain $5,000 at 1,200 units. If there were a variable component or a threshold that triggers an increase, the amount could change, but that isn’t suggested in this scenario.

Understanding cost behavior with fixed versus variable costs is the key idea here. Administrative salaries are typically fixed in the short run, meaning they don’t change with the level of production or sales within the relevant range. Since the budget allocates $5,000 for administrative salaries at a 1,000-unit level and there’s no indication of a step change or variable portion, the amount stays the same when volume rises to 1,200 units. So, the budgeted administrative salaries remain $5,000 at 1,200 units. If there were a variable component or a threshold that triggers an increase, the amount could change, but that isn’t suggested in this scenario.