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howell corporation is a wholesaler that sells a single product. management has provided following cost data...

howell corporation is a wholesaler that sells a single product. management has provided following cost data for two levels of monthly sales volume.

sales units 6000 8000

cost of goods sold $ 4578000 510800

selling and administrative costs $ 621000 639000

selling price per unit $ 185 185 .

the best estimate of the net operating income(loss) if 6500 units are sold is

A. 259750

B. (3800)

C.105950

D. 83950

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Homework Answers

Answer #1

NOTE - I THINK YOU MISTAKENLY WRITE COGS AS 4578000 INSTEAD OF 457800

We have to distribute cost of goods sold and selling & dist exp into fixed and variable

A) COGS

Variable rate = change in costs / change in units

= (510800-457800) / (8000-6000)

= 53000/2000 = 26.5

Fixed amount = Total - variable

( calculated using 6000 level)

Fixed cost = 457800 - (6000*26.5) = 298800

2) Selling and adm cost

Variable rate = change in costs / change in units

= (639000-621000) / (8000-6000)

= 18000/2000 = 9

Fixed amount = Total - variable

( calculated using 6000 level)

Fixed cost = 621000 - (6000*9) = 567000

Calculation of income / loss

Particulars Amount
Sales(6500*185) 1202500
COGS:-
variable ( 6500 * 26.5) (172250)
Fixed (298800)
Selling and adm
- Variable ( 6500 * 9) (58500)
- Fixed (567000)
Operating income 105950

Right answer option c

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