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Part 1: The 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. Required: 1. Using the high-low method, derive a cost formula for clerical expense for Stirling Co. (10 points) Part 2: 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 

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Part 1:

 

The 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.

 

Required:

  1. Using the high-low method, derive a cost formula for clerical expense for Stirling Co.

(10 points)

 

 

 

 

 

 

 

 

 

 

 

 

 

Part 2:

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

 

The post Part 1: The 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. Required: 1. Using the high-low method, derive a cost formula for clerical expense for Stirling Co. (10 points) Part 2: 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  appeared first on Speed Essays.

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