Reference no: EM131690505

Question - Gallop Corporation prepared the following report for the first quarter of 2015:

Sale (2,500 units @ $2,800 per unit)		$7,000,000
Less: Cost of goods sold		3,840,000
Gross margin		3,160,000
Less:
Selling expenses	$1,024,000
Administrative expenses	1,000,000	2,024,000
Income		$1,136,000

Gallop's controller, Nancy Johnstone, studied the costs in detail, particularly focusing on cost behaviour.

Her analysis revealed the following:

• Sixty-five percent of the cost of goods sold was variable With respect to the number of units
• Of the selling expenses, $800,000 was fixed, the remaining 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.

2. Redo the above income statement using a contribution margin approach.