The Central Valley Company is a manufacturing firm that produces and sells a single product. The company?s revenues and expenses for the last four months are given below.

Required:

1. Management is concerned about the losses experienced during the spring and would like to know more about the cost behaviour. Develop a cost equation for each of the costs.

2. Using the cost equations, prepare a contribution margin income statement (in good form) for September when 5,500 units are expected to be sold.

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Central Valley Company Comparative Monthly Income Statements June May 5,250 March April 4,500 5,000 6,000 Sales in units Sales revenue Less: Cost of goods sold $ 630,000 $840,000 $ 700,000 $735,000 370,000 342.000 379,000 426.000 Central Valley Company Comparative Monthly Income Statements March April May June Gross margin 330,000 288,000 356,000 414,000 Less: Operating expenses Shipping expense 61,500 56,000 65,000 71,000 Advertising expense 70,000 70,000 70,000 70,000 Salaries & commissions 160,800 143,000 161,500 180,500 Insurance expense 9,000 9,000 9,000 9,000 Depreciation expense 42.000 42,000 42.000 42.000 Total operating expenses _343,000 320.000 347,500 372,500 Net income $(13,300) $(32,000) $ 8,500 $ 41,500