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Central Valley Company: Contribution Margin

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.

Solution Summary

The attached MS Excel spreadsheet contains detailed instructions for determination of mixed expenses and contribution margin for the Central Valley Company, utilizing the high-low method of cost allocation.

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