Question

High-Low Method Contribution Form Income Statement P 6A-A Orange Company Income Statements For the three months ended June 30, 202X Sales in units April 7,000 May 10,000 June 9,000 $ 280,000 $ 400,000 $ 360,000 210,000 300,000 270,000 $ 70,000 $100,000 $ 90,000 $ Sales Cost of goods sold Gross margin Operating expenses: Advertising Depreciation Rent Salaries and commissions Utilities Total operating expenses Net income 5,000 $ 3,000 8,000 34,000 12,500 62,500 $ 7,500 $ 5,000 $ 3,000 8,000 40,000 17,000 73,000 $ 27,000 $ 5,000 3,000 8,000 38,000 15,500 69,500 20,500 $ $ Required: 1) Classify each of the six expenses, including cost of goods sold, as variable, fixed or mixed. 2) For each of the mixed expenses found in requirement (1), find the cost equation stated in the form: Y = a + bx. 3) Prepare the income statement, for June, in contribution form.

Answer 1

1)

Cost of goods sold - Variable

Advertising - Fixed

Depreciation - Fixed

Rent - Fixed

Salaries and commissions - Mixed

Utilities - Mixed

2)

Salaries and commissions:

Y = $20,000 + $2X

Utilities:

Y = $2,000 + $1.5X

3)

Sales	$360,000
Variable cost	$301,500
Contribution margin	$58,500
Fixed cost	$38,000
Net operating income	$20,500