Gallop Corporation prepared the following report for the first quarter of this year:
| Sales (@ $3,200 per unit) | $ | 9,600,000 | |||
| Less: Cost of goods sold | 4,115,000 | ||||
| Gross margin | 5,485,000 | ||||
| Less: | |||||
| Selling expenses | $ | 1,074,000 | |||
| Administrative expenses | 1,100,000 | 2,174,000 | |||
| Income | $ | 3,311,000 | |||
Gallop’s controller, Nancy Johnstone, studied the costs in detail, particularly focusing on cost behavior. Her analysis revealed the following:
- Fixed portion of the cost of goods sold for the quarter amounted to $1,625,000.
- Of the selling expenses, 20% was variable with respect to the number of units.
- All of the administrative expenses were fixed.
Required:
1. Express the cost of goods sold and the selling expenses in terms of cost equations. (Round the “Variable cost” to 2 decimal places.)
2. Re-do and prepare the above income statement using a contribution margin approach. (Do not round intermediate calculations.)
