PROBLEM 5-20 Cost Behavior; High-Low Method;
Contribution Format Income Statement (LO1, LO2, LO4)
CHECK FIGURE: (2) Shipping: P9,000 per month plus P9.00
per unit
P5-20 Compania Maritima S.A., of Santiago de Chile is
a merchandising company that supplies a variety of American products to the
Chilean market. The company’s income statements for the three most recent
months follow:
|
Compania Maritima S.A.
Income Statements
For the Three Months Ending
June 30
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|
|
April
|
May
|
June
|
|
|
Sales in units
|
6,500
|
7,400
|
7,000
|
|
|
Sales revenue
|
P260,000
|
P296,000
|
P280,000
|
|
|
Cost of goods sold
|
78,000
|
88,800
|
84,000
|
|
|
Gross margin
|
182,000
|
207,200
|
196,000
|
|
|
Selling and administrative expenses:
|
|
|
||
|
Advertising expense
|
5,000
|
5,000
|
5,000
|
|
|
Shipping expense
|
67,500
|
75,600
|
72,000
|
|
|
Salaries and commissions
|
30,800
|
34,400
|
32,800
|
|
|
Insurance expense
|
4,000
|
4,000
|
4,000
|
|
|
Depreciation expense
|
2,500
|
2,500
|
2,500
|
|
|
Total selling and administrative
expenses
|
109,800
|
121,500
|
116,300
|
|
|
Net operating income
|
P 72,200
|
P 85,700
|
P 79,700
|
|
(Note: Compania Maritima S.A.’s Chilean-formatted
income statement has been recast in the format common in the United States. The
Chilean dollar is denoted by P.)
Required:
1. Identify each of the company’s expenses (including
cost of goods sold) as either variable, fixed, or mixed.
2. Using the high-low method, separate each mixed
expense into variable and fixed elements. State the cost formula for each mixed
expense.
3. Redo the company’s income statement at the 7,000-unit
level of activity using the contribution format.
SOLUTION PREVIEW
Analysis
of the mixed costs:
|
|
Units
|
Shipping
Expense
|
Salaries
and Commission Expenses
|
|
High
activity level
|
7,400
|
P
75,600
|
P
34,400
|
|
Low
activity level
|
6,500
|
67,500
|
30,800
|
|
Change
|
900
|
8100
|
3,600
|
|
|
Correct!
|
Correct!
|
Correct!
|
File name: P5-20-Compania-Maritima.xls File type: XLS Price: $8
