Gallop Corporation prepared the following report for the first quarter of this year:

Gallop?s controller, Nancy Johnstone, studied the costs in detail, particularly focusing on cost behaviour. Her analysis revealed the following:

? Sixty-five percent of the cost of goods sold was variable with respect to the number of units.

? Of the selling expenses, $800,000 was fixed; the remaining was variable with respect to the number of units.

? All of the administrative expenses were fixed.

Required:

1. Express the cost of goods sold and the selling expenses in terms of cost equations.

2. Redo the above income statement using a contribution margin approach.

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Sales (2,500 units @ $2,800 per unit) Less: Cost of goods sold Gross margin Less: $7,000,000 3,840,000 3,160,000 Selling expenses $1,024,000 Administrative expenses 1,000,000 2.024.000 $1,136.000 Income