Income Statements For the Three Months Ended September 30 July Sales in units 4,000 4,500 5,000 Sales $400,000 240,000 $450,000 270,000 $500,000 300,000 Cost of goods sold Gross margin Selling and administrative expenses: 160,000 80,000 200,000 Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense 21,000 34,000 78,000 6,000 15,000 21,000 36,000 84,000 6,000 21,000 38,000 90,000 6,000 15,000 15,000 162,000 $ 6.000 S 18,000 Total selling and administrative expenses 154,000 170,000 Net operating income 30,000 Required 1. identify each of the company’s expenises (including cost of goods sold) as elther variable, fixed, or mixed Classification Variable Fixed Mixed Mixed Fixed Expenses Cost of goods sold Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense 5 名 P3
Expert Answer
Answer to Part 1.
Expenses | Classification |
Cost of goods sold | Variable |
Advertising Expense | Fixed |
Shipping Expense | Mixed |
Salaries and Commission | Mixed |
Insurance Expense | Fixed |
Depreciation Expense | Fixed |
Answer to Part 2.
Calculation of Variable Cost Element and Fixed Cost Element in Mixed Cost:
As per High- low Method:
Variable Cost per unit = (Cost at Highest level of activity – Cost at lowest level of activity) / (Units at Highest level of activity – Units at Lowest Level of Activity)
Units | Shipping Expense | Salaries and Commission | |
High Level of Activity | 5,000 | 38,000 | 90,000 |
Low Lev of Activity | 4,000 | 34,000 | 78,000 |
Change | 1,000 | 4,000 | 12,000 |
Variable Cost per unit=
Change in Cost / Change in units |
$4 | $12 |
Shipping Expense:
Shipping Expense (Fixed):
$38,000 = $4 * 5,000 + Fixed Cost
$38,000 = $20,000 + Fixed Cost
Fixed Cost = $18,000
Cost formulae for Shipping Expense:
Y = $18,000 + $4per unit
Salaries and Commission Expense:
Salaries and Commission Expense (Fixed):
$90,000 = $12 * 5,000 + Fixed Cost
$90,000 = $60,000 + Fixed Cost
Fixed Cost = $30,000
Cost formulae for Salaries and Commission Expense:
Y = $30,000 + $12per unit
Calculation of Variable Cost per unit:
Cost of goods sold per unit = 24,000 / 4,000 = $60
Total Variable Cost per unit = $60 + $4 + $12
Total Variable Cost per unit = $76
Calculation of Total Fixed Cost:
Total Fixed Cost = $21,000 + $18,000 + $30,000 + $6,000 + $15,000
Total Fixed Cost = $90,000