Maryland Novelties Company produces and sells souvenir products. Monthly income statements for two activity levels are providedbelow:Unit volumesRevenueLess cost of goods soldGross marginLess operating expensesSalaries and commissionsAdvertising expensesAdministrative expensesTotal operating expensesNet incomeRequired22,000 units$ 165,00066,000$ 99,00022,00033,00013,75068,750$ 30,250Required A Required B Required C33,000 units$ 247,50099,000$ 148,500a. Identify each of the following expenses as fixed, variable, or mixed.b. Use the high-low method to separate the mixed costs into variable and fixed components.c. Prepare a contribution margin income statement at the 22,000-unit level.27,50033,00013,75074,250$ 74,250Complete this question by entering your answers in the tabs below.< Required AIdentify each of the following expenses as fixed, variable, or mixed.Salaries and commissionsAdvertising expensesAdministrative expensesRequired B >

The contribution margin is calculated as the difference between the sales and variable costs. The net income is calculated as the difference between the contribution margin and fixed costs.Part a. CostClassificationSalaries and commission Mixed CostAdvertising expense Fixed CostAdministrative expenseFixed Cost The advertising and administrative expense are constant at every level of production and hence, reported as fixed costs.Salaries and commission are mixed cost.Part b.Using high-low method,Salaries and commissions:22,000 units = $22,00033,000 units = $27,500Variable cost per unit = (High level cost – low level cost)/ (high-level units – low level units) = (27,500 – 22,000)/ (33,000 – 22,000) = $0.5 per unitFixed cost = High-level cost – High level units*VC per unit = 27,500 – 33,000*0.5 = $11,000Part c.Income StatementSales $165,000Less: variable costs Cost of goods sold66,000Salaries and commissions (22,000*$0.5)11,000Total variable costs(77,000)Contribution margin88,000Less: fixed costs Salaries and commission 11,000Advertising expenses33,000Administrative expenses13,750Total fixed costs(57,750)Net income$30,250 Part a. CostClassificationSalaries and commission Mixed CostAdvertising expense Fixed CostAdministrative expenseFixed Cost Part b.Variable cost per unit = $0.5 per unitFixed cost = $11,000Part c.Income StatementSales $165,000Less: variable costs Cost of goods sold66,000Salaries and commissions (22,000*$0.5)11,000Total variable costs(77,000)Contribution margin88,000Less: fixed costs Salaries and commission 11,000Advertising expenses33,000Administrative expenses13,750Total fixed costs(57,750)Net income$30,250

Business

Accounting

Maryland Novelties Company produces and sells souvenir products. Monthly income statements for two activity levels are provided below: Unit volumes Revenue Less cost of goods sold Gross margin Less operating expenses Salaries and commissions Advertising expenses Administrative expenses Total operating expenses Net income Required 22,000 units $ 165,000 66,000 $ 99,000 22,000 33,000 13,750 68,750 $ 30,250 33,000 units $ 247,500 99,000 $ 148,500 27,500 33,000 13,750 74,250 $ 74,250 a. Identify each of the following expenses as fixed, variable, mixed. b. Use the high-low method to separate the mixed costs into variable and fixed components. c. Prepare a contribution margin income statement at the 22,000-unit level.

Maryland Novelties Company produces and sells souvenir products. Monthly income statements for two activity levels are provided below: Unit volumes Revenue Less cost of goods sold Gross margin Less operating expenses Salaries and commissions Advertising expenses Administrative expenses Total operating expenses Net income Required 22,000 units $ 165,000 66,000 $ 99,000 22,000 33,000 13,750 68,750 $ 30,250 33,000 units $ 247,500 99,000 $ 148,500 27,500 33,000 13,750 74,250 $ 74,250 a. Identify each of the following expenses as fixed, variable, mixed. b. Use the high-low method to separate the mixed costs into variable and fixed components. c. Prepare a contribution margin income statement at the 22,000-unit level.

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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Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) Total $ 4,070,000 1,273,000 2,797,000 2,220,000 $ 577,000 Financial (disadvantage) I Department Hardware $ 3,060,000 870,000 2,190,000 1,370,000 $ 820,000 Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? A study indicates that $372,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 18% decrease in the sales of the Hardware Department. Linens $ 1,010,000 403,000 607,000 850,000 $ (243,000)
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Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) Total $ 4,310,000 1,313,000 2,997,000 2,200,000 $ 797,000 Department Hardware $ 3,130,000 901,000 2,229,000 1,360,000 $ 869,000 Linens $ 1,180,000 412,000 768,000 840,000 $ (72,000) A study indicates that $377,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 11% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? Financial (disadvantage)