Cost Behavior Mixed Cost analysis Butler Sales Company is a distributor that has
ID: 2425334 • Letter: C
Question
Cost Behavior Mixed Cost analysis
Butler Sales Company is a distributor that has an exclusive franchise to sell a particular product made by another company. Butler Sales Company's income statements for the last two years are given below:
THIS YEAR
LAST YEAR
Units sold
250,000
240,000
Sales Revenue
$1,000,000
$ 960,000
Less cost of goods sold
720,000
691,200
Gross margin
280,000
268,800
Less operating expenses
200,000
195,000
Net operating income
$ 80,000
$ 73,800
OPERATING EXPENSES ARE MIXED COSTS (mixture of fixed costs and variable costs) that vary with respect to the number of units sold. Note that cost of goods sold are all variable costs.
Required:
a. Estimate the company's variable operating expenses per unit, and its total fixed operating expenses per year. Use High — Low analysis(two data points)
b. Complete the mixed cost formula for Butler Sales.
c. What are total operating costs if Units Sold are 350,000.
d. Compute the company's contribution margin for THIS YEAR assuming cost of goods sold of $720,000 included $20,000 of fixed costs.
THIS YEAR
LAST YEAR
Units sold
250,000
240,000
Sales Revenue
$1,000,000
$ 960,000
Less cost of goods sold
720,000
691,200
Gross margin
280,000
268,800
Less operating expenses
200,000
195,000
Net operating income
$ 80,000
$ 73,800
Explanation / Answer
a. Variable operating cost per unit = (200000 - 195000)/(250000 - 240000)
= 0.50 per unit
Fixed operating cost per unit = 200000 - 250000 x 0.50
= 75000
b. Mixed cost formula = 75000 + 0.50X
Where X represents no. of units sold
c. Total Operating cost= 75000 + 0.50 x 350000
= 250000
d. Contribution = 1000000 - 700000 - 250000 x 0.50
= 175000