Edwards & Shaw is a merchandising company that is the sole distributor of a product that is increasing in popularity. The companys income statement for the three most recent months is listed below.

Edwards and Shaw

Income Statement

For the Three Months Ending September

	July	August	September
Sales in Units	5,000	4,000	6,500
Sales Revenue	$625,000	$500,000	$812,500
Cost of Goods Sold	265,000	220,000	332,500
Gross Margin	360,000	280,000	480,000
Operating Expenses:
Advertising Expense	5,000	5,000	5,000
Shipping Expense	20,000	16,000	26,000
Salaries and Commissions	75,000	70,000	82,500
Legal Expense	3,000	3,000	3,000
Depreciation Expense	9,000	9,000	9,000
Total Operating Expenses	112,000	103,000	125,500
Operating Income	$248,000	$177,000	$354,500

Identify each of the companys individual expenses (both product and period) as either a variable, fixed or mixed cost.

Using the high-low method, separate each of the individual mixed cost into the variable rate and fixed cost elements. State the cost equation for each individual mixed costs.

Edwards and Shaw expect to produce and sell 7,000 units in October. Prepare an absorption income statement for October.

Prepare a Contribution Margin Income Statement based on October sales of 7,000 units. Do not combine expenses but show each expense separately in the appropriate category.

Calculate the contribution margin per unit and the variable cost ratio.

How many units would need to be sold to generate $50,000 in target income? (Round your answer to the nearest unit using the Excel Round Up function.)

Give one example of how Edwards and Shaw could increase projected operating income without increasing total sales revenue.

Edwards and Shaw are considering a multimedia advertising campaign that should increase sales by $45,000 per month. The ad campaign will cost an additional $2,500 per month and will be considered a fixed cost. How will the ad campaign affect product cost? How will the increase in fixed costs affect the break-even point? Explain.

Template l Income statement I sheets I 19 Using the highlow method, separate .ach of the mixed into variable and fixed .lements, state the cost.quation foreach mixed cost You may have more than one cost 21 Variable Rate 22 Fixed Cost 23 Cost Formula It's ok to type the cost formula dredty into the you wanotrecerve credt ifthe vanable rate and fixed costs are not calculated using Excel cell references and formulas. 3. Edwards and Shaw expect to sell 7,000 units in october. Prepare an absorptionincome statement for october (assume we produce and sell the same number of units). Sales in Units 7.000 Sales Revenue 45 Operating Income 4) Prepare a Contribution Margin Income statement based on the october sales of 7.000 units 4s (assume we produce and sell the same number of units Do not combine expenses but show .ach expense separately in the appropriate Sales in Units