Question

Question 1: Butler Sales Company is a distributor that has an exclusive franchise to sell a particular product made by another company. Butler Sales Company's traditional format income statements for the last two years are given below: This Year Last Year Units sold 210,000 170,000 $1,000,000S800,000 Sales revenue Cost of goods sold Gross margin Selling and administrative expense Net operating income 700,000 560,000 300,000 240,000 220.000 195.000 $90.000 $ 42,000 Selling and administrative expense is a mixture of fixed costs and variable costs that vary with respect to the number of units sold. Required: a. Using the high-low method, estimate the company's variable selling and administration expense per unit, and its total fixed selling and administrative expense per year. (2 marks) b. Compute the company's contribution margin for this year. (2 marks)

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Answer 1

Requirement a
Month	Units sold	Selling and administrative expense
Last year	170000	195000
This year	210000	220000
Variable cost per hour using High -Low Method
Variable cost of selling and administrative expense per unit =		Difference in High-low units selling and administrative expenses
		Difference in High-low Units
	=	220,000-195,000
		210000-170000
	=	0.625 per unit
Fixed selling and administrative expense:
By using above variable cost per unit either this year or last year expense
Fixed expense    =	Total expense - (Units * variable cost per unit)
=	220,000- (210000*0.625)
=	$88,750
Requirement b
Contribution margin for this year
= Sales revenue - Variable cost
= (1,000,000 -(700000+131250))
= $168,750