Question

Vaughn Window Cleaners' monthly income statement at several levels of activity is as follows: Windows washed 2,500 4,400 9,100 Sales revenue $ 3,400 $ 5,984 $ 12,376 Cost of goods sold 1,200 2,112 4,368 Gross profit 2,200 3,872 8,008 Operating expenses Advertising expense 400 400 400 Salaries and wages expense 750 940 1,410 Insurance expense 200 200 200 Postage expense 450 792 1,638 Total operating expense 1,800 2,332 3,648 Operating income $ 400 $ 1,540 $ 4,360 (a) Identify each expense as fixed, variable, or mixed. Cost of goods sold Advertising Salaries and Wages Insurance Postage

Answer 1

a)
	Cost of goods sold			Variable
	Advertising			Fixed
	Salaries and wages			Mixed
	Insurance			Fixed
	Postage			Variable
					4300
					Windows		per unit
b)	Sales revenue				5848		1.36
	Variable cost
	cost of goods sold			2064			0.48
	Salaries and wages			430			0.1
	Postage			774			0.18
	Total variable cost				3268		0.76
	Contribution margin				2580		0.6
	Fixed cost
	Advertising			400
	Salaries and wages			500
	Insurance			200
	total fixed cost				1100
	Operating income				1480
	working notes:
	Salaries and wages
			units	cost
	High		9,100	1,410
	low		2,500	750
	Difference		6,600	660
	Variable cost per unit			0.1
	Fixed cost			500