Question & Answer: Manuela Company has an exclusive franchise to purchase a product from the manufacturer and distribute it on th…..

Manuela Company has an exclusive franchise to purchase a product from the manufacturer and distribute it on the retail level. As an aid in planning, the company has decided to start using a contribution format income statement. To have data to prepare such a statement, the company has analyzed its expenses and has developed the following cost formulas: Cost of good sold Advertising expense Sales commissions Shipping expense Administrative salaries$83,000 per quarter Insurance expense Depreciation expense $23 per unit sold $173,000 per quarter 6% of sales $9,300 per quarter $53,000 per quarter Manuela Management has come to conclusion that shipping expense is a mixed cost, Units sold and the related shipping expense over the last eight quarters follow Shipping Units SoldExpense Year 1 First Second Third Fourth 19,000 $163,000 21,000 $178,000 26,000 S220,000 22,000$183,000 Year 2 First Second Third Fourth 20,000 $173,000 23,000 $188,000 33,400 $235,000 30,400$211,000 Manuela Companys president would like a cost formula derived for shipping expense so that a budgeted contribution format income statement can be prepared for the next quarter Type here to search 0
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Manuela Company has an exclusive franchise to purchase a product from the manufacturer and distribute it on the retail level. As an aid in planning, the company has decided to start using a contribution format income statement. To have data to prepare such a statement, the company has analyzed its expenses and has developed the following cost formulas: Cost of good sold Advertising expense Sales commissions Shipping expense Administrative salaries$83,000 per quarter Insurance expense Depreciation expense $23 per unit sold $173,000 per quarter 6% of sales $9,300 per quarter $53,000 per quarter Manuela Management has come to conclusion that shipping expense is a mixed cost, Units sold and the related shipping expense over the last eight quarters follow Shipping Units SoldExpense Year 1 First Second Third Fourth 19,000 $163,000 21,000 $178,000 26,000 S220,000 22,000$183,000 Year 2 First Second Third Fourth 20,000 $173,000 23,000 $188,000 33,400 $235,000 30,400$211,000 Manuela Company’s president would like a cost formula derived for shipping expense so that a budgeted contribution format income statement can be prepared for the next quarter Type here to search 0

Expert Answer

 

Units sold Shipping expense
High activity level 33400 235000
Low activity level 19000 163000
Change 14400 72000
Variable costs per unit 5
Fixed cost element 68000
2
Budgeted Contribution format income statement
Sales revenue 1431000
Variable expenses:
Cost of goods sold 621000
Sales commissions 85860
Shipping expense 135000
Total Variable expenses 841860
Contribution margin 589140
Fixed expenses:
Advertising expense 173000
Administrative salaries 83000
Insurance expense 9300
Depreciation expense 53000
Shipping expense 68000
Total Fixed expenses 386300
Net operating income 202840

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