Question

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: norogh nells August September October Sales in units oldshaybat 200 300 260 Sales revenue $30,000 $45,000 $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 expenseldis 5,900 6,350 6 ,170 Depreciation expenses od 580 580 580- Shipping expense 1,400 noon ni 2,100 1,820 Office expense os 120 Debo 170 150 Total operating expenses 8,000 9,200 Income from operation $ 6,000 $11.900 $ 9,480 Instructions 8,720 (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 Novem (Show expense items individually)

Do instructions part a), b), c), & d)

Answer 1

a.

Cost of Good Sold	Variable	Since it changes directly with change in output
Salaries and Wages	Mixed	Since it changes but no as per output changes
Depreciation Expense	Fixed	Since it remains same for all levels of output
Shipping expense	Variable	Since it changes directly with change in output
Office Expense	Mixed	Since it changes but no as per output changes

b.
Cost of Goods Sold = $16000 / 200 = $80 per unit
Shipping Expenses = $1400 / 200 = $7 per unit

c.
Salaries and Wages
Variable Cost = ($6350-$5900) / (300 - 200) = $4.5 per unit
Fixed Cost = $5900 - 200 x $4.5 = $5000

Office Expenses
Variable Cost = ($170-$120) / (300 - 200) = $0.5 per unit
Fixed Cost = $120 - 200 x $0.5 = $20

d.

Sales Revenue		$            60,000	=400*150
Less Variable Expense
Cost of Good Sold	$          32,000		=400*80
Salaries and Wages	$            1,800		=400*4.5
Shipping expense	$            2,800		=400*7
Office Expense	$               200		=400*0.5
Total Variable Expenses		$            36,800
Contribution Margin		$            23,200
Less Fixed Expense
Depreciation Expense	$               580
Salaries and Wages	$            5,000
Office Expense	$                  20
Total Fixed Expense		$              5,600
Income from Operations		$            17,600