Question

dvlour Pincome 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: 1,5) Sales in units Sales revenue Cost of goods sold Gross profit Operating expenses Salaries and wages expense Depreciation expenses Shipping expense 24,000 Wiley Office expense August September 200 October 300 $30,000 260 $45,000 16,000 $39,000 14,000 20,800 21,000 18,200 5,900 6,350 580 6,170 580 580 1,400 2,100 1,820 120 170 Total operating expenses 150 8,000 Income from operation 9,200 8,720 $ 6,000 $11,800 $ 9,480 Instructions (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 VP income statement up to income from operations for November. (Show expense items individually.)

Answer 1

Answer a.

Cost of Goods Sold: Variable Expense
Salaries and Wages Expense: Mixed Expense
Depreciation Expenses: Fixed Expenses
Shipping Expense: Variable Expense
Office Expense: Mixed Expense

Answer b.

Cost of Goods Sold:

Variable Cost of Goods Sold per unit = Cost of Goods Sold for September / Sales in Units in September
Variable Cost of Goods Sold per unit = $16,000 / 200
Variable Cost of Goods Sold per unit = $80

Shipping Expense:

Variable Shipping Expense per unit = Shipping Expense for September / Sales in Units in September
Variable Shipping Expense per unit = $1,400 / 200
Variable Shipping Expense per unit = $7

Answer c.

Salaries and Wages Expense:

Variable Salaries and Wages Expense per unit = (Salaries and Wages Expense for September - Salaries and Wages Expense for August) / (Sales in Units in September - Sales in Units in August)
Variable Salaries and Wages Expense per unit = ($6,350 - $5,900) / (300 - 200)
Variable Salaries and Wages Expense per unit = $4.50

Fixed Salaries and Wages Expense = Salaries and Wages Expense for September - Variable Salaries and Wages Expense per unit * Sales in Units in September
Fixed Salaries and Wages Expense = $6,350 - $4.50 * 300
Fixed Salaries and Wages Expense = $5,000

Office Expense:

Variable Office Expense per unit = (Office Expense for September - Office Expense for August) / (Sales in Units in September - Sales in Units in August)
Variable Office Expense per unit = ($170 - $120) / (300 - 200)
Variable Office Expense per unit = $0.50

Fixed Office Expense = Office Expense for September - Variable Office Expense per unit * Sales in Units in September
Fixed Office Expense = $170 - $0.50 * 300
Fixed Office Expense = $20

Answer d.

Deco-Lampz Ltd. Income Statement For the Month Ending November 30 Sales in units 400 $ $ 60,000 32,000 28,000 Sales revenue Cost of goods sold Gross profit Operating expenses Salaries and wages expense Depreciation expenses Shipping expense Office expense Total operating expenses Income from operation 6,800 580 2,800 220 10,400 17,600 $