Question: Cosgrove, Inc., is a wholesaler that distributes a single product. The company's revenues and expenses for the last three months are given below: Cosgrove Company Traditional Format Income Statement For the Three Months Ended June 30 April May June
Sales in units .................................................. 3,000 3,750 4,500
Sales revenue ................................................ $420,000 $525,000 $630,000
Cost of goods sold ......................................... 168,000 210,000 252,000
Gross margin ................................................. 252,000 315,000 378,000
Selling and administrative expenses: Shipping expense ....................................... 44,000 50,000 56,000
Advertising expense ................................... 70,000 70,000 70,000
Salaries and commissions .......................... 107,000 125,000 143,000
Insurance expense ..................................... 9,000 9,000 9,000
Depreciation expense ................................. 42,000 42,000 42,000
Total selling and administrative expense ....... 272,000 296,000 320,000
Net operating income (loss) ........................... $( 20,000) $ 19,000 $ 58,000
Required: a. Determine which expenses are mixed and, by use of the high-low method, separate each mixed expense into variable and fixed elements. (Use unit sales as the activity measure.) State the cost formula for each mixed expense.
b. Compute the company's contribution margin for May.