The Central Valley Company is a manufacturing firm that produces and sells a single product. The company's revenues and expenses for the last four months are given below.

Central Valley Company

Comparative Income Statement

March April May June

Sales in units 5,000 4,500 5,250 6,000

Sales revenue $700,000 $630,000 $735,000 $840,000

Less: Cost of goods sold 370,000 342,000 379,000 426,000

Gross margin $330,000 $288,000 $356,000 $414,000

Less: Operating Expenses

Shipping expense $61,500 $56,000 $65,000 $71,000

Advertising expense 70,000 70,000 70,000 70,000

Salaries and commissions 160,800 143,000 161,500 180,500

Insurance expense 9,000 9,000 9,000 9,000

Amortization expense 42,000 42,000 42,000 42,000

Total operating expenses $343,000 $320,000 $347,500 $372,500

Net income $(13,300) $(32,000) $8,500 $41,500

1. Management is concerned about the losses experienced during the spring and would like to know more about the cost behaviour. Develop a cost equation for each of the costs.
2. Using the cost equations, prep a contribution margin income statement (in good form) for September when 5,500 units are expected to be sold.

(The figure check for the contribution margin in #2 is $269,500.)

1.

The variable component can be computed as shown below: Sales Units COGS Observed Costs Shipping Salaries 8L Commissions High activity June Low acvity - April Difference Compute the variable cost below: Calculate the Fixed portion of the mixed cost