2) The Central Valley Company is a merchandising firm that sellsa single product. The company's revenues and expenses for the lastthree 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 expense | | | |
Shipping expense | 56,000 | 63,500 | 71,000 |
Advertising expense | 70,000 | 70,000 | 70,000 |
Salary & Commissions | 143,000 | 161,750 | 180,500 |
Insurance expense | 9,000 | 9,000 | 9,000 |
Depreciation expense | 42,000 | 42,000 | 42,000 |
Total expense | $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 thehigh-low method, separate each mixed expense into its variable andfixed components. State the cost formula for each mixedexpense.
b. Compute the company's total contribution margin for May.
