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.
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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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