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# Central Valley Company: Contribution Margin

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AQ-3

The Central Valley Company is a merchandising firm that sells a single product. The company's revenues and expenses for the last three months are given below:

Central Valley Company
Comparative Income Statement
For the Second Quarter
April May June
Sales in units ......................... 4,500 5,250 6,000
Sales revenue .................. \$630,000 \$735,000 \$840,000
Less cost of goods sold ...... \$252,000 294,000 336,000
Gross Margin ................... \$378,000 441,000 504,000

Less operating expenses:
Expense A .............................56,000 63,500 71,000
Expense B .............................70,000 70,000 70,000
Expense C .............................143,000 161,750 180,500
Expense D .............................9,000 9,000 9,000
Expense E .............................42,000 42,000 42,000
Total operating expenses 320,000 346,250 372,500
Net income............................\$58,000 \$94,750 \$131,500

Required:

a. Determine which expenses are mixed and, by use of the high-low method, separate each mixed expense into its variable and fixed components. State the cost formula for each mixed expense.

b. Compute the company's total contribution margin for May.