Question

Help Save & Exit Submit Check my work 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 July August September Sales Gross margin Selling and administrative expenses Advertising expense Shipping expense salaries and commissions Insurance expense Depreelation expense Total selling and administrative Net operating income 115,000 Required: 1. By analyzing the data from the company's income statements, classify each of its expenses including cost of goods sold as ether variable, foxed, or mixed 2. Using the high-low method, separate each m ed expense into variable and foed elements. Express the variable and feed portions of each more expense in the form Ya+bX 3. Redo the company's income statement at the 7.250 unit level of activity using the contribution format

Answer 1

1)	Expenses				Classification
	cost of goods sold				Variable
	Advertising expense				fixed
	shipping expense				mixed
	Salaries and commission				mixed
	insurance expense				fixed
	Depreciation expense				fixed
2)	High low method
	shipping expense
			units	cost
	high		7,250	70,100
	low		6,250	62,500
	difference		1,000	7,600
	variable expense per unit 7600/1000 = $7.6
	fixed expense = 70100-7250*7.6=				15000
	Salaries and commission
			units	cost
	high		7,250	128,800
	low		6,250	115,000
	difference		1,000	13,800
	Variable expense per unit = 13800/1000=$13.8
	fixed expense = 128800-7250*13.8=				28750
	cost formula
			Variable cost		Fixed cost	Formula
	shipping expense		7.6	per unit	15,000	Y=	15,000	+	7.6	per unit
	Salaries & commission		13.8	per unit	28,750	Y=	28,750	+	13.8	per unit
3)	Sales in units				7250
	Sales				761,250
	Variable expense
	Cost of goods sold			456,750
	Shipping expense			55,100
	Salaries and commission			100050
					611,900
	Contribution margin				149,350
	Fixed expense
	Advertising expense			36,600
	Shipping expense			15,000
	Salaries & commission			28,750
	insurance expense			9,100
	Depreciation expense			16,900
					106,350
	Net income				43,000