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Okanagan Mountain Equipment Co. manufactures carabiner clips for mountain climbing. The company's income statements for the last two years are given below: 2020 2021 Units

Okanagan Mountain Equipment Co. manufactures carabiner clips for mountain climbing. The company's income statements for the last two years are given below:

2020

2021

Units sold

90,000

82,500

Sales

$ 1,500,000

$ 1,375,000

Cost of goods sold

537,000

492,250

Gross margin

963,000

882,750

Selling expenses

225,000

211,000

Administrative expenses

75,000

75,000

Net income

663,000

596,750

The company has no beginning or ending inventories.

Required:

a. Use the high-low method to determine the cost formula for the selling expenses, which are a mixed cost. (5 marks)

b. The company expects to sell 111,000 units next year. Prepare the budgeted income statement using the contribution format for this level of activity. No heading required. (7 marks)

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