Question

$45,000 P20-2B Deco-Lampz Ltd. is a small company that sells decorative lamps to decorators and consumers. The company's income statements for the last three months are shown below: August September October Sales in units Id 200 3 00 2 60 Sales revenue Dat $30,000 $39,000 Cost of goods sold 16,000 24,000 20,800 Gross profit 14,000 21,000 18,200 Operating expenses Salaries and wages expenses ny 5,900 6,350 6,170 Depreciation expenses 580 580 580. Shipping expenses about 1,400 .00 2,100 1,820 Office expense 120 170 150 Total operating expenses 9,200 8,720 Income from operation $ 6,000 $11,800 $ 9,480 Instructions 8,000 (a) Identify each of the company's expenses (including cost of goods sold) as being variable, fixed, or mixed. (b) Calculate the cost per unit for each of the variable expenses. (c) Using the high-low method, determine the variable cost per unit and the fixed cost component for each of the mixed costs. (d) Management has projected that the sales volume in November will increase to 400 lamps. Using the cost in formation determined above, prepare a CVP income statement up to income from operations for Novembe (Show expense items individually.) Do instructions part a), b), c), & d)

Answer 1

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Deco Lampz

Answer c

High Low method

Variable cost=

(Highest activity cost- Lowest activity cost)/ (Highest activity units- Lowest activity units)

Cost of goods sold

Units

Salaries

Units

Shipping

Units

Office

Units

Highest units

24,000.00

300.00

Highest units

6,350.00

300.00

Highest units

2,100.00

300.00

Highest units

170.00

300.00

Lowest units

16,000.00

200.00

Lowest units

5,900.00

200.00

Lowest units

1,400.00

200.00

Lowest units

120.00

200.00

Difference

8,000.00

100.00

Difference

450.00

100.00

Difference

700.00

100.00

Difference

50.00

100.00

Variable cost per unit

80.00

Variable cost per unit

4.50

Variable cost per unit

7.00

Variable cost per unit

0.50

Fixed cost

Highest activity cost- (Highest units * Variable cost per unit)

Fixed cost

Highest activity cost- (Highest units * Variable cost per unit)

Fixed cost

Highest activity cost- (Highest units * Variable cost per unit)

Fixed cost

Highest activity cost- (Highest units * Variable cost per unit)

Fixed cost

24000-(300*80)

Fixed cost

6350-(300*4.50)

Fixed cost

2100-(300*7)

Fixed cost

170-(300*0.50)

Fixed cost

-

Fixed cost

5,000.00

Fixed cost

-

Fixed cost

20.00

Answer a	Nature
Cost of goods sold	Variable
Salaries & Wages Expense	Mixed
Depreciation	Fixed
Shipping Expense	Variable
Office Expense	Mixed
Answer b	Variable cost per unit
Cost of goods sold	80.00		A
Salaries & Wages Expense	4.50		B
Shipping Expense	7.00		C
Office Expense	0.50		D
Answer c	Fixed Portion	Variable Portion
Cost of goods sold	-	80.00
Salaries & Wages Expense	5,000.00	4.50
Depreciation	580.00
Shipping Expense	-	7.00
Office Expense	20.00	0.50
Total	5,600.00	92.00	P
Sales Value	30,000.00		E
Units sold	200.00		F
Sell price per unit	150.00		G=E/F
Units sold in November	400.00		H
Sell price per unit	150.00		See G
Sales Revenue	60,000.00		I=H*G
Answer d
	Amount $	Amount $
Sales Revenue		60,000.00	See I
Less: Variable costs
Cost of goods sold	32,000.00		J= A*H
Salaries & Wages Expense	1,800.00		K= B*H
Shipping Expense	2,800.00		L= C*H
Office Expense	200.00		M=D*H
Total Variable costs		36,800.00	N=J+K+L+M
Contribution margin		23,200.00	O=I-N
Less: Fixed costs
Salaries & Wages Expense	5,000.00
Depreciation	580.00
Office Expense	20.00
Total Fixed costs		5,600.00	See P
Income from operations		17,600.00	Q=-P