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QUESTION 1 Lies Inc. prepared the following report for the first quarter of this year: Sales (2,500 units @ $2,800 per unit) $7,000,000 Less: Cost
QUESTION 1 Lies Inc. prepared the following report for the first quarter of this year: Sales (2,500 units @ $2,800 per unit) $7,000,000 Less: Cost of Goods sold $3,840,000 Gross Margin $3,160,000 Less: Selling Expense Administrative Expense $1,024,000 $1,000,00 $2,024,000 $1,136,000 Income Lie's controller, Billy Baroo, studied the costs in detail, particularly focusing on cost behaviour. Her analysis revealed the following: Sixty-five percent of the cost of goods sold was variable with respect to the number of units. Of the selling expenses, $800,000 was fixed; the remaining was variable with respect to the number units. All of the administrative expenses were fixed. . Required: 1. Express the cost of goods sold and the selling expenses in terms of cost equations. Hint: y=ax+b(15 marks) 2. Redo the above income statement using a contribution margin approach. (10 marks)
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