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Managerial Accounting

5-1- Distinguish between (a) a variable cost, (b) a fixed cost, and (c) a mixed cost
5-2 -What effect does an increase in volume have on:
a) Unit fixed costs?
b) Unit variable costs?
c) Total fixed costs?
d) Total variable costs?

5-3- Define the following terms:
a) Cost Behavior
b) Revelant range

5-4 Contribution Format Income Statement
Haaki Shop, Inc., is a large retailer of water sports equipment. An income statement for the company's surfboard department for a recent quarter is presented below:
The Haaki Shop, Inc.
Income Statement-Surfboard Department
For the Quarter Ended May 31
Sales 800,000
Cost of goods sold 300,000
Gross Margin 500,000
Selling and Administrative expenses:
Selling expenses 250,000
Administrative expenses 160,000 410,000
Net operating income 90,000

The surfboards sell, on the average, for $400 each. The department's variable selling expenses are $50 per surfboard sold. The remaining selling expenses are fixed. The administrative expenses are 25% variable and 75% fixed. The company purchases its surfboards from a supplier at a cost of 150 per surfboard.
1. Prepare an income statement for the quarter using the contribution approach.
2. What was the contribution toward fixed expenses and profits from each surfboard sold during the quarter? (State this figure in a single dollar amount per surfboard)


Solution Preview

Dear student,

Fixed costs;

Fixed costs are costs which do not vary with level of production and sales. Examples of fixed costs are rent, depreciation, salaries and wages, property tax, insurance and interest expense. Fixed costs are time related and not volume related. Fixed costs are costs which do not change in proportion to the activities of the business within the relevant ...