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1 2 Jay Corporation has decided to prepare contribution income statements for internal planning. 3 4 Budgeted information for Quarter 1 of 2024: 5 Sales in units 6 Sales price per unit 7 8 9 10 11 After analyzing expenses, the company has determined the following cost patterns. Cost of Goods Sold (per unit) $29.00 Sales Commissions (per dollar of sales) 9.50% Administrative Salaries (per quarter) 12 Rent Expense (per quarter) 13 Depreciation Expense (per quarter) 14 2022 17,000 $48.00 15 Shipping has been determined to be a mixed cost with the following total costs and units: 16 17 18 Quarter 1 19 Quarter2 20 Quarter 3 21 Quarter 4 22 2023 23 24 25 26 Quarter 1 Quarter2 Quarter 3 Quarter 4 $45,000 $27,000 $36,000 Total Cost $67,000 $94,000 $89,800 $92,600 $72,500 $80,000 $84,000 $100,000 Units 12,500 21,000 13,800 20,000 13,700 14,000 14,300 22,500

1 2 Jay Corporation has decided to prepare contribution income statements for internal planning. 3 4 Budgeted information for Quarter 1 of 2024: 5 Sales in units 6 Sales price per unit 7 8 9 10 11 After analyzing expenses, the company has determined the following cost patterns. Cost of Goods Sold (per unit) $29.00 Sales Commissions (per dollar of sales) 9.50% Administrative Salaries (per quarter) 12 Rent Expense (per quarter) 13 Depreciation Expense (per quarter) 14 2022 17,000 $48.00 15 Shipping has been determined to be a mixed cost with the following total costs and units: 16 17 18 Quarter 1 19 Quarter2 20 Quarter 3 21 Quarter 4 22 2023 23 24 25 26 Quarter 1 Quarter2 Quarter 3 Quarter 4 $45,000 $27,000 $36,000 Total Cost $67,000 $94,000 $89,800 $92,600 $72,500 $80,000 $84,000 $100,000 Units 12,500 21,000 13,800 20,000 13,700 14,000 14,300 22,500

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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### Shipping Costs and Contribution Margin Analysis #### 1. High-Low Method for Shipping Costs To determine a cost formula for shipping costs, the high-low method is used. This involves the following steps: - **Identify High and Low Activity Levels:** - **High Level of Activity:** - Total Cost: $100,000 - Units: 22,500 - **Low Level of Activity:** - Total Cost: $72,000 - Units: 12,500 - **Calculate the Change in Costs and Activity:** - Change in Cost: $28,000 - Change in Activity: 10,000 units - **Determine Variable Cost per Unit:** - Variable Cost per Unit = Change in Cost / Change in Activity - Variable Cost per Unit = $2.80 - **Calculate Fixed Costs:** - Total Cost at High Level of Activity: $100,000 - Total Variable Cost Element: $63,000 - Total Fixed Cost: $37,000 #### 2. Contribution Margin Income Statement for Quarter 1 of 2024 **Jay Corporation** **Budgeted Income Statement** **For 2024, Quarter 1** - **Sales:** $816,000 - **Variable Expenses:** - Cost of Goods Sold: $493,000 - Sales Commissions: $77,520 - Shipping Expenses: $27,000 - **Total Variable Expenses:** - **Contribution Margin:** $218,480 - **Fixed Expenses:** - Administrative Salaries: $45,000 - Advertising Expense: $36,000 - Depreciation: $13,000 - Shipping Expense: $11,000 - **Total Fixed Expenses:** - **Net Operating Income:** $113,480 This outline illustrates how to use the high-low method to establish a cost formula for shipping, and shows a detailed contribution margin income statement, providing insights into the financial structure and operational efficiency during the specified period.
Transcribed Image Text:### Shipping Costs and Contribution Margin Analysis #### 1. High-Low Method for Shipping Costs To determine a cost formula for shipping costs, the high-low method is used. This involves the following steps: - **Identify High and Low Activity Levels:** - **High Level of Activity:** - Total Cost: $100,000 - Units: 22,500 - **Low Level of Activity:** - Total Cost: $72,000 - Units: 12,500 - **Calculate the Change in Costs and Activity:** - Change in Cost: $28,000 - Change in Activity: 10,000 units - **Determine Variable Cost per Unit:** - Variable Cost per Unit = Change in Cost / Change in Activity - Variable Cost per Unit = $2.80 - **Calculate Fixed Costs:** - Total Cost at High Level of Activity: $100,000 - Total Variable Cost Element: $63,000 - Total Fixed Cost: $37,000 #### 2. Contribution Margin Income Statement for Quarter 1 of 2024 **Jay Corporation** **Budgeted Income Statement** **For 2024, Quarter 1** - **Sales:** $816,000 - **Variable Expenses:** - Cost of Goods Sold: $493,000 - Sales Commissions: $77,520 - Shipping Expenses: $27,000 - **Total Variable Expenses:** - **Contribution Margin:** $218,480 - **Fixed Expenses:** - Administrative Salaries: $45,000 - Advertising Expense: $36,000 - Depreciation: $13,000 - Shipping Expense: $11,000 - **Total Fixed Expenses:** - **Net Operating Income:** $113,480 This outline illustrates how to use the high-low method to establish a cost formula for shipping, and shows a detailed contribution margin income statement, providing insights into the financial structure and operational efficiency during the specified period.
**Jay Corporation: Contribution Income Statement Preparation** **Overview:** Jay Corporation is preparing contribution income statements for internal planning. **Budgeted Information for Quarter 1 of 2024:** - Sales in units: 17,000 - Sales price per unit: $48.00 **Cost Patterns Analysis:** - Cost of Goods Sold (per unit): $29.00 - Sales Commissions (per dollar of sales): 9.50% - Administrative Salaries (per quarter): $45,000 - Rent Expense (per quarter): $27,000 - Depreciation Expense (per quarter): $36,000 **Shipping Costs Analysis:** Shipping has been classified as a mixed cost, combining fixed and variable components. **Total Shipping Costs and Units Overview:** | Year | Quarter | Total Cost | Units | |------|----------|------------|--------| | 2022 | Quarter 1| $67,000 | 12,500 | | | Quarter 2| $94,000 | 21,000 | | | Quarter 3| $89,500 | 18,300 | | | Quarter 4| $92,500 | 20,500 | | 2023 | Quarter 1| $72,500 | 13,700 | | | Quarter 2| $79,300 | 18,100 | | | Quarter 3| $84,000 | 14,300 | | | Quarter 4| $100,000 | 22,500 | The table reveals variations in shipping costs and units over eight quarters, indicating a mixed cost behavior influenced by both volume and fixed elements.
Transcribed Image Text:**Jay Corporation: Contribution Income Statement Preparation** **Overview:** Jay Corporation is preparing contribution income statements for internal planning. **Budgeted Information for Quarter 1 of 2024:** - Sales in units: 17,000 - Sales price per unit: $48.00 **Cost Patterns Analysis:** - Cost of Goods Sold (per unit): $29.00 - Sales Commissions (per dollar of sales): 9.50% - Administrative Salaries (per quarter): $45,000 - Rent Expense (per quarter): $27,000 - Depreciation Expense (per quarter): $36,000 **Shipping Costs Analysis:** Shipping has been classified as a mixed cost, combining fixed and variable components. **Total Shipping Costs and Units Overview:** | Year | Quarter | Total Cost | Units | |------|----------|------------|--------| | 2022 | Quarter 1| $67,000 | 12,500 | | | Quarter 2| $94,000 | 21,000 | | | Quarter 3| $89,500 | 18,300 | | | Quarter 4| $92,500 | 20,500 | | 2023 | Quarter 1| $72,500 | 13,700 | | | Quarter 2| $79,300 | 18,100 | | | Quarter 3| $84,000 | 14,300 | | | Quarter 4| $100,000 | 22,500 | The table reveals variations in shipping costs and units over eight quarters, indicating a mixed cost behavior influenced by both volume and fixed elements.
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