Question

Assume a merchandising company uses the high-low method to separate any mixed costs into their variable and fixed elements. It provided the following income statements:

	May				June				July
Sales in units		4,800				5,000				5,500
Sales	$	168,000			$	175,000			$	192,500
Cost of goods sold		86,400				90,000				99,000
Gross margin		81,600				85,000				93,500
Selling and administrative expenses:
Advertising		17,000				17,000				17,000
Shipping		16,800				17,500				19,250
Salaries and commissions		29,600				30,000				31,000
Total selling and administrative expenses		63,400				64,500				67,250
Net operating income	$	18,200			$	20,500			$	26,250

What is the estimated cost of goods sold if the company sells 5,200 units?

Multiple Choice

• $93,600

• $94,400

• $95,800

• $92,000

Answer 1

Answer : -  

Estimated cost of goods sold

93,600

Calculation:-

Level	Months	Units	Cost of goods sold
High	July	5,500	99,000
Low	May	4,800	86,400
Difference		700	12,600
Variable cost per unit (X) (12600/700)			18
Total cost at high level			99,000
Less: Variable cost at high level (5500*18)			99,000
Fixed cost			-
Fixed cost of goods sold (if any)			-
Variable cost of goods sold (5200*18)			93,600
Estimated cost of goods sold			93,600