The management team at Stirling Company decided that it would be more informative if their costs were separated into fixed...
dalaldThe management team at Stirling Company decided that it would be more informative if their costs were separated into fixed and variable categories. Accordingly, the accounting department has made the following analysis:
COST COST FORMULA Fixed Variable or Mixed?
Cost of goods sold $40 per unit
Advertising $70,000 per year
Sales commissions 8.5% of sales revenue
Administrative salaries $160,000 per year
Clerical expense ? Mixed (see below)
Depreciation $24,500 per year
Insurance $18,000 per year
The accounting department believes that clerical expense is a mixed cost, containing both fixed and variable cost elements. A tabulation has been made of clerical expense and sales over the last several years, as follows:
[Activity] [Total (Mixed Cost]
Year Units Sold Clerical Expense $
2009 10,000 $125,000
2010 7,000 $100,000
2011 8,000 $105,000
2012 11,000 $140,000
2013 9,000 $120,000
2014 15,000 $160,000
The president of Stirling Company would like a cost formula developed for clerical expenses so that a contribution-type income statement can be prepared for management’s use.
Stirling Company plans to sell 12,000 units during 2015 at a selling price of $100 per unit. Prepare a budgeted income statement for the year using the contribution format. (10 points)
BIG HINT: Your Net Income should equal $208,000 J
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