Question

Morrisey & Brown, Ltd., of Sydney is a merchandising company that is the sole distributor of a product that is increasing in popularity among Australian consumers. The company's income statements for the three most recent months follow: Morrisey & Brown, Ltd. Income Statements For the Three Months Ended September 30 September 7,5ee July August 6,508 7,000 Sales in units $ 65e, eee 398, ee0 26e,000 $ 750, eee 450, eee зее, еее $ 78e, eee 428,ee0 288,000 Sales Cost of goods sold Gross margin Selling and administrative expenses: Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense Total selling and administrative expenses Net operating income 25,800 73,eee 125,000 25, 800 69,eee 118,e00 9,750 16,400 238,950 $21,ese 25, 8e0 77,eee 132,088 9,750 16,400 249,950 $ 30,ese 9,750 16,400 260,95e $ 39,05e Required: 1. By analyzing the data from the company's income statements, classify each of its expenses (including cost of goods sold) as either variable, fixed, or mixed 2. Using the high-low method, separate each mixed expense into variable and fixed elements. Express the variable and fixed portions of each mixed expense in the form Y=a+ bX Complete this question by entering your answers in the tabs below.

Answer 1

1. By analyzing the data from the company's income statements, classify each of its expenses (including cost of goods sold) as either variable, fixed, or mixed. Expenses Classification Cost of goods sold Variable Advertising expense Fixed Shipping expense Mixed Salaries and commissions Mixed Insurance expense Fixed Depreciation expense Fixed 2.Using the high-low method, separate each mixed expense into variable and fixed elements. Express the variable and fixed portions of each mixed expense in the form Y = a + bx. Variable Cost Fixed Cost Formula Shipping expense $8.00 per unit $17,000 Y = $17,000 + $8 per unit Salaries and commissions $14.00 per unit $27,000 Y = $27,000 + $14 per unit

Explanation: Shipping expense: Variable cost per unit = (Cost at its highest level of Activity - Cost at its lowest level of Activity) (Highest level of Activity - Lowest level of Activity) Variable cost per unit = Variable cost per unit = Variable cost per unit = ($77,000 - $69,000)/(7,500 - 6,500) |($8,000 / 1,000 units) $8.00 per unit Activity Level High 7,500 units $77,000 Low 6,500 units $69,000 Total costs Less: Variable costs (7,500 units * $8.00 per unit) (6,500 units * $8.00 per unit) Total fixed costs = 60,000 $17,00 15:20 52,000 $17,000 $17,000

Salaries and commissions: Variable cost per unit = (Cost at its highest level of Activity - Cost at its lowest level of Activity) (Highest level of Activity - Lowest level of Activity) Variable cost per unit = Variable cost per unit = Variable cost per unit = ($132,000 - $118,000) / (7,500 - 6,500) |($14,000 / 1,000 units) $14.00 per unit Activity Level High 7,500 units $132,000 Low 6,500 units $118,000 Total costs Less: Variable costs (7,500 units * $14.00 per unit) (6,500 units * $14.00 per unit) Total fixed costs = 105,000 91,000 $27,000 $27,000