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Assignment 2

This document discusses managerial accounting concepts related to cost behavior and the contribution format income statement. It provides an example of identifying variable, fixed, and mixed costs for a company. The mixed costs of shipping expense and salaries & commission are separated into their variable and fixed components using the high-low method. The cost formulas for the mixed expenses are then presented. Finally, the income statement is redone at the high volume level of 4500 units using the contribution format and cost formulas derived.

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Hira Mustafa Shah
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146 views3 pages

Assignment 2

This document discusses managerial accounting concepts related to cost behavior and the contribution format income statement. It provides an example of identifying variable, fixed, and mixed costs for a company. The mixed costs of shipping expense and salaries & commission are separated into their variable and fixed components using the high-low method. The cost formulas for the mixed expenses are then presented. Finally, the income statement is redone at the high volume level of 4500 units using the contribution format and cost formulas derived.

Uploaded by

Hira Mustafa Shah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

International Islamic University, Islamabad

Managerial Accounting

Submitted To: Sir Zakir Satti


Submitted By: Hira Mustafa
Registration NO. : 7143-FMS/MBA/F15
Batch: MBA-31

Date: 28th September 2017


Chapter # 2
Managerial Accounting & Cost Concepts

PROBLEM 2-18 Cost Behavior: High & Low Method: Contribution Format
Income Statement
1. Identify each of the companys expenses (including cost of goods sold) as
either variable, fixed or mixed.

Cost of goods sold: Variable expense


Shipping expense: Mixed expense
Advertising expense: Fixed expense
Salaries and commission: Mixed expense
Insurance expense: Fixed expense
Depreciation expense: Fixed expense
2. Using the High Low method, separate each mixed expense into variable
and fixed elements. State the cost formula for each mixed expense.

Shipping expense:
Volume Cost
High 4500 56000
Low 3000 44000
Difference 1500 12000

Per unit variable cost = 12000/1500 = 8 per unit

Variable cost for high volume = 8*4500 = 36000


Variable cost for low volume = 8*3000 = 24000
High Low
Total Cost 56000 44000
Variable Cost 36000 24000
Fixed Cost 20000 20000

Date: 28th September 2017


Salaries & Commission expense:
Volume Cost
High 4500 143000
Low 3000 107000
Difference 1500 36000

Per unit variable cost = 36000/1500 = 24 per unit

Variable cost for high volume = 24*4500 = 108000


Variable cost for low volume = 24*3000 = 72000

High Low
Total Cost 143000 107000
Variable Cost 108000 72000
Fixed Cost 35000 35000

Cost of goods sold:


Volume Cost
High 4500 252000
Low 3000 168000
Difference 1500 84000

Per unit variable cost = 84000/1500 = 56 per unit

3. Redo the company statement at the 4500 unit level of activity using the
contribution format:

Cost of goods sold = 4500*56 = 252000


Salaries & Commission = 4500*24 = 108000
Shipping expense = 4500*8 = 36000

As per cost formula: y = a + bx

Salaries & Commission: 35000 + 4500(24) = 56000


Shipping: 20000 + 4500(8) = 143000

Date: 28th September 2017

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