Question

exercise 3-4

Refer to the data in Exercise 1-2 for the Halifax General HOLL Required: 1. Using the high low method estimate the fixed cost of admitting patients per month and the vari- able cost of admissions per patient. 2 What factors other than the number of patients admitted are likely to affect changes in admitting department costs from month to month? CHECK FIGURE Variable costs patient: Fixed cc $19.000 EXERCISE - Contribution Format Income Statement (L03) The Rhythm Shop is a large retailer of acoustic, electric, and bass guitars. An income statement for the company's acoustic guitar department for a recent quarter is presented below: THE RHYTHM SHOP Income Statement-Acoustic Guitar Department For the Quarter Ended March 31 $1,600,000 800.000 800.000 Sales ... Cost of goods sold...... Gross margin........... Selling and administrative expenses: Selling expenses... Administrative expenses... Operating income..... $400,000 200.000 600.000 $ 200,000 The guitars sell, on average, for $800 each. The department's variable selling expenses are $75 per guitar sold. The remaining selling expenses are fixed. The administrative expenses are 25 variable and 75% fixed. The company purchases its guitars from several suppliers at an average cost of $400 per guitar Required: 1. Prepare an income statement for the quarter using the contribution approach. 2. What was the contribution toward fixed expenses and profits from each guitar sold during the quar- ter? (State this figure in a single dollar amount per guitar.) 3. If The Rhythm Shop sells 100 more guitars in the quarter ending June 30 than it did in the quarter ending March 31, and fixed costs remain the same, by how much will operating income increase? EXERCISE 3-5 Cost Behaviour; Contribution Format Income Statement LOLLO3 Wave Runners is a boat rental business that has the following costs over the relevant range of 12,000 to 18.000 operating hours for its boats: Operating Hours 14,000 16,000 12,000 18,000 $ 54,000 504.000 $558,000 Total costs: Variable costs............ Fixed costs.... Total costs Cost per unit: Variable cost. Fixed cost.... Total cost per hour. ....... H-

Answer 1

1. Contribution format income statement
The Rhythm Shop
Income statement-Acoustic Guitar Department (Contribution Format)
For the quarter ended March, 31
	Amount
Sales	$1,600,000
Less:
Cost of purchase($ 400*2000)	800000
Variable selling expenses	150,000
Variable administrative expenses	50000
Contribution	$600,000
Less: Fixed cost
Fixed selling expenses	250,000
Fixed administrative expenses	150000
Net income	$200,000.00
Working notes
1. No of units sold=	Sales /Average selling price of guitar
	$ 1,600,000/800
	2000 guitars
2. Bifurcation into fixed cost and variable cost
	Selling Expenses	Administrative Expenses
Variable (75*2000)	150,000	50000	(200000*25%)
Fixed	250,000	150000
Total	400,000	200,000

2. Contribution towards fixed expenses and profits
	Amount
Contribution (as computed in part 1) (a)	$600,000
No of units (b)	2000
Contribution towards fixed expenses and profits (a/b) per guitar	$300
3. Calculation of increase in profit
Profit will be increased in terms of contribution only because fixed cost has not been changed over the period.
Increased profit=	Increased number of units* Contribution per guitar
	100*$ 300
	$30,000