CVP Case with Mixed Costs Morrison Corporation is a small company that sells digital thermometers and other supplies to hospitals in the Phoenix, AZ area. The company employs one sales agent who earns both a salary and commission. Last year, Morrison Corporation purchased a new Subaru Impreza for $25,000 for the sales agent to use for 100% business transportation. The company controller estimated that the Impreza would have a five-year life and a residual value of $6,000. The company uses straight-line depreciation for all plant assets. The costs for this year specifically related to the Impreza are insurance for $1,000, fuel for $5,000 and other costs. The controller estimates that with the increase in fuel costs, that the amount next year for fuel will increase by 5%. The controller believes that the insurance cost will stay constant. The other costs include maintenance, fixing flat tires, oil changes, tickets, parking, car washes/detailing, etc. The other costs for the Impreza for each month of last year is below. Miles Driven Total Other Cost January February 3,367 330 3,453 329 March 1,255 140 April 4,892 490 May 1,629 400 June 5,478 518 July 5,381 506 August 6,933 549 September 3,983 369 October 3,630 343 November 4,762 462 December 2,815 261 Total 47,578 The controller had prepared a Budgeted Income Statement for next year, but didn't include the costs for the Impreza. The Budgeted Income Statement is below: Morrison Corporation Budgeted Income Statement Sales 1,500,000 Commissions 75,000 Other Variable Costs 500,000 575,000 Contribution Margin 925,000 Fixed selling costs 400,000 Fixed administrative costs 300,000 700,000 Net Operating Income 225,000