Question 1

Walter & Randstad. Ltd. is a European is a single distributor of a product that grew popularity among European consumers. Below is the income statement for the three most recent months.

Walter & Randstad.

Income Statements

For the three Months Ended December 31

	October	November	December
Sales in units	5000	5500	6000
Sales	$500,000	$550,000	$600,000
Cost of Goods Sold	$300,000	$320,000	$360,000
Gross Margin	$200,000	$230,000	$240,000
Selling & Administrative Expenses:
Advertising expense	$29,000	$29,000	$29,000
Salaries & commissions	$34,000	$38,000	$40,000
Insurance expenses	$8,000	$8,000	$8,000
License Fee	$60,000	$62,000	$65,000
Depreciation expenses	$20,000	$20,000	$20,000
Total Selling & Administrative Expenses	$137,000	$143,000	$147,000
Net Operating Income	$63,000	$87,000	$97,000

Required:

1. Identify each of the company’s expenses (including Cost of goods sold) as variable, fixed or mixed cost.
2. Using the high-low method, identify and separate mixed expenses into variable and fixed elements. State the cost formula for each mixed expenses.                                                                                                                                                         
3. Redo the company’s income statement at the 6000 unit level of activity using the contribution format.

                                                                                     

Answer rating: 100% (QA)

1 Identification of cost classification Cost of Goods Sold is a variable cost as it changes directly with the number of units sold ... View the full answer