Question

2-24 Cost behavior identification; contribution format income statement (LO 1, 3) Mighty Bright Window Cleaners' monthly income statement at several levels of activity is as follows: Windows washed Sales revenue Cost of goods sold Gross profit Operating expenses 1,000 2.000 3,000 $3,000 $6,000 $9,000 1200 2400 3,600 oo0 1,800 $3.6005400 Advertising expense 400 400400 Salaries and wages expense 700 9001,100 200 200 200 800 1,200 Total operating expenses 1,700 2,300 2,900 200 90o 400 Insurance expense Postage expense Operating income $ 100 $1,300 $2.500 Required a. Identify each expense as fixed, variable, or mixed. b. Prepare a contribution margin income statement based on a volume of 2,500 windows.

Answer 1

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Format and Naming convention is not available, can be slightly different: Answers are highlighted in yellow: Solution: 1) Cost of Goods Sold Advertising Salaries and Wages Insurance Postage Variable Fixed Mixed Fixed Variable hodUnits Cost Variable portion of Salaries using high-low method: Highest level Lowest level Difference 3000 1,100 1000 $700 2000 $ 400 Variable cost per unit- (400/2000)- $0.20 2500 runit $ 7,500 $ 3.00 2) Particulars Total Sales Revenue Less: Variable Costs: Cost of Goods Sold Salaries and Wages Expense Postage Expense Total Variable costs Contribution Margin Less: Fixed costs: Advertising Expense Salaries and Wages Expense (700)-(1000 0.20) 500 Insurance Expense Total Fixed Costs Operating Income (2500*3) $ 3,000 $ 1.20 $500 $ 0.20 $ 1,000 $ 0.40 S 4,500 $ 1.80 $3,000 $ 1.20 (2500*1.20) 400 200 $ 1,100 $ 1,900