Butler Sales Company Is a Distributor That Has an Exclusive

Essay

Butler Sales Company is a distributor that has an exclusive franchise to sell a particular product made by another company. Butler Sales Company's traditional format income statements for the last two years are given below:
$\begin{array}{lrr} & \text { This Year } & \text { Last Year } \\\text { Units sold } & 200,000& 160,000 \\\text { Sales revenue } & \$ 1,000,000& \$ 800,000 \\\text { Cost of goods sold } & \underline{700,00 0} & \underline{560,000}\\\text { Gross margin } & 300,000 & 240,000 \\\text { Selling and administrative expense } & \underline{210,000} & 198,000 \\\text { Net operating income } & \$ 90,000 & \$ 42,00 0\end{array}$ Selling and administrative expense is a mixture of fixed costs and variable costs that vary with respect to the number of units sold.
Required:
a. Estimate the company's variable selling and administration expense per unit, and its total fixed selling and administrative expense per year.
b. Compute the company's contribution margin for this year.