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
	July				August				September
Sales in units		7,750				8,250				8,750
Sales	$	775,000			$	825,000			$	875,000
Cost of goods sold		465,000				495,000				525,000
Gross margin		310,000				330,000				350,000
Selling and administrative expenses:
Advertising expense		28,200				28,200				28,200
Shipping expense		89,500				94,500				99,500
Salaries and commissions		140,000				147,500				155,000
Insurance expense		7,200				7,200				7,200
Depreciation expense		21,600				21,600				21,600
Total selling and administrative expenses		286,500				299,000				311,500
Net operating income	$	23,500			$	31,000			$	38,500

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.

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. (Round the Variable cost per unit to 1 decimal place.)

Answer 1

Anaszok Expenses Classification Variable Cost of Goods sold fixed - Advertising Expense Shipping Expense Salaries and Commissions inixed Mixed Insurance Expense fixed fixed reciation Expense t Variable Cost fixed cost formula $15 per $23,750/7= $23,750 + unit $ 15 Salaries and | Commisn'ons fer lunit 1910 Per $12,000 = $12,000+ $10 Shipping Expenses Unit Unit working r. | Variable cast of Salaries is commistims . change in cost Change in activity 7500 500 $15 =

fixed cost of Salails s Commissions's . - $ 140,000 - ($15 X 7,750) $23.750 | Variable Cast of shipping Expenses - Change in last D o Change in activity soo. fixed cost of shopping Expenses & $ 89,500 - CH10x7750) = 1 $12000
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