Accounting 225 Quiz Section #3

Chapter 2-2 Class Exercises Solution

1. Slonaker Inc. has provided the following data concerning its maintenance

costs:
Management believes that maintenance cost is a mixed cost that depends on machine-hours.
Estimate the variable cost per machine-hour and the fixed cost per month using the high-low
method. Show your work!

Variable cost = Change in cost Change in activity

= ($30,388 - $30,078) (5,809 machine-hours - 5,717 machine-hours)
= $310 92 machine-hours
= $3.37 per machine-hour
Fixed cost element = Total cost - Variable cost element
= $30,078 - ($3.37 per machine-hour 5,717 machine-hours)
= $10,812

Accounting 225 Quiz Section #3

Chapter 2-2 Class Exercises Solution
2. Pittman Corporation, a merchandising company, reported the following results for September:

a. Prepare a traditional format income statement for September.

b. Prepare a contribution format income statement for September.

Accounting 225 Quiz Section #3

Chapter 2-2 Class Exercises Solution
3. Whitman Corporation, a manufacturing company, reported sales of 7,400 units for May at a
selling price of $677 per unit. The cost of goods sold included $441 per unit and $500,000 of
fixed manufacturing overhead. The variable selling expense was $54 per unit. The total fixed
selling expense was $155,600. The variable administrative expense was $24 per unit and the total
fixed administrative expense was $370,400.
Assume beginning inventory was zero and units produced were equal to units sold. Also assume
that actual MOH was equal to applied MOH.
a. Prepare a contribution format income statement for May.
Whitman
Contribution Margin I/S
Revenue
VC: Var. COGS
Var. Selling Exp
Var. Admin Exp
Contribution Margin
FC: Fixed MOH
Fixed Selling Exp
Fixed Admin Exp
Net Operating Income (Loss)

$5,009,800
($3,263,400)
($399,600)
($177,600)
$1,169,200
($500,000)
($155,600)
($370,400)
$143,200

b. Prepare a traditional format income statement for May.

Whitman
Traditional I/S
Revenue
COGS
Gross Margin
Selling Exp
Admin Exp
Net Operating Income (Loss)

$5,009,800
($3,763,400)
$1,246,400
($555,200)
($548,000)
$143,200