Maryland Novelties Company Produces and Sells Souvenir Products Required:
1)Identify the Mixed Expense(s)

question 152

Essay

Maryland Novelties Company produces and sells souvenir products.Monthly income statements for two activity levels are provided below:
$\begin{array}{lrr}\text { Unit volumes } & 20,000 \text { units } & 30,000 \text { units } \\\text { Revenue } & \$ 150,000 & \$ 225,000 \\\text { Less cost of goods sold } & 60,000 & 90,000\\\text { Gross margin } & \$ 90,000 & \$ 135,000 \\\text { Less operating expenses } & & \\\text { Salaries and commissions } & 20,000 & 25,000\\\text { Advertising expenses } & 30,000& 30,000 \\\text { Administrative expenses } & 12,500 & 12,500 \\\text { Total operating expenses } & 62,500& 67,500 \\\text { Net income } & \$ 27,500 & \$ 67,500\end{array}$ Required:
1)Identify the mixed expense(s).
2)Use the high-low method to separate the mixed costs into variable and fixed components.
3)Prepare a contribution margin income statement at the 20,000-unit level.

---

Definitions:

Net Income

The total earnings of a company after all expenses and taxes have been deducted from total revenue, indicating the company’s profitability over a specific time period.

Equity Method

An accounting technique used by companies to assess the profits earned through their investments in other companies, reflecting these profits as income.

Dividends

Payments made by a corporation to its shareholders from its profits or reserves, usually in the form of cash or additional shares.

Recognized Gain

An increase in the value of an asset that has been sold or deemed to have increased in value officially on financial statements.