down jackets has three types of costs: jacket cost, factory rent cost, and utili
ID: 2442529 • Letter: D
Question
down jackets has three types of costs: jacket cost, factory rent cost, and utilities cost. This company sells its jackets for $16.50 each. Management has prepared the following estimated cost information for next month under two different sales levels.At 10,000 jackets At 12,000 jackets
Jacket cost $80,000 $96,000
Rent cost 6,000 6,000
Utilities cost 8,400 9,900
Required
1. Compute what the company should expect for total variable cost if 11,000 jackets are sold next month. (Hint: Use the high-low method to separate jacket and utilities costs into their variable and fixed components.)
2. Prepare its contribution format income statement for a monthly sales volume of 12,000 jackets.
Explanation / Answer
HI Lo Difference
No. of Jackets 10,000 12,000 2,000
Jacket Cost $80,000 $96,000 $16,000
Utilities cost $8,400 $9,900 $1,500
Total $88,400 $105,900 $17,500
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Variable cost per Jacket $17,500 / 2,000 = $8.75 per jacket
Total VC for 11,000 jackets = $8.75 x 11,000 = $96,250
2. Prepare its contribution format income statement for a monthly sales volume of 12,000 jackets.
CVP Income Statement
Sales 12,000 x $16.50 $198,000
Less : Variable cost
Jacket cost $16,000x12,000/2,000 $96,000
Utilities cost $1,500x12,000/2,000 $9,000 $105,000
Contribution Margin $93,000
Less : Fixed costs
Utilities cost ($9,900 - $9,000) $900
Rent $6,000 $6,900
Net Income $86,100
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