Frankel Company

Traditional Income Statement

For the 3 months ending September 30, 2020

July August September

Sales in units 4,000 4,500 5,000

Sales $400,000 $450,000 $500,000

Cost of goods sold 240,000 270,000 300,000

Gross Margin 160,000 180,000 200,000

Selling & Administrative Expenses:

Advertising 21,000 21,000 21,000

Shipping 34,000 36,000 38,000

Salaries and commissions 78,000 84,000 90,000

Insurance 6,000 6,000 6,000

Depreciation 15,000 15,000 15,000

Total Selling & Administrative Expenses 154,000 162,000 170,000

Net Operating Income $6,000 $18,000 $30,000

Required:

1. Use the high low method to determine the cost equation for each item on the income statement.

2. Using the cost equations, create the contribution income statement for 5,000 units.

3. Using the cost equations, create the contribution income statement for 4,800 units.