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

Sales (2,600 units @ $2,800 per unit)			$	7,280,000
Less: Cost of goods sold				3,242,000
Gross margin				4,038,000
Less:
Selling expenses	$	1,049,000
Administrative expenses		1,050,000		2,099,000
Income			$	1,939,000

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, $750,000 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. (Round the "Variable cost" to 2 decimal places.)

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

Answer rating: 100% (QA)

Total Variable and fixed cost Variable Fixed VC per unit Cost of goods sold 2107300 1134700 8105 Se... View the full answer