QUESTION 3

1. Pelotoni Dips Inc. manufactures a single product that has become very popular in the Windsor area. The income statement for the most recent three months prior to taxes are as follows:

   Pelotini Dips Inc.
   Income Statement
   Quarterly Statement ending March 31, 2021
   	Q1	Q2	Q3	Q4
   Sales in Units	4,400	4,000	5,000	4,600
   Sales Revenues	$440,000	$400,000	$500,000	$460,000
   Less:COGS	$264,000	$240,000	$300,000	$276,000
   Gross Margin	$176,000	$160,000	$200,000	$184,000
   Less: Expenses
   Advertising	$ 21,000	$ 21,000	$ 21,000	$ 21,000
   Shipping	$ 35,000	$ 34,000	$ 38,000	$ 36,000
   Salaries and Commissions	$ 83,000	$ 78,000	$ 90,000	$ 85,000
   Insurance	$ 6,000	$ 6,000	$ 6,000	$ 6,000
   Depreciation	$ 15,000	$ 15,000	$ 15,000	$ 15,000
   Total Operating Expenses	$160,000	$154,000	$170,000	$163,000
   Net Income (before taxes)	$ 16,000	$ 6,000	$ 30,000	$ 21,000

   1. Using the high-low method, separate each mixed expense into variable and fixed expenses. Provide the cost formula for each mixed expense. [Hint: identify your expenses to find out the mixed expenses.] (10 marks)
   2. Now redo the companys income statement at the 5,000-unit level of activity using the contribution format. (8 marks)
   3. Your marketing manager sat down with the budgeting team and predicts sales to be at the 4,500 units in the next quarter. Prepare a contribution margin income statement. (8 marks)