Question

ter 5b Saved Morrisey & Brown, Ltd. Income Statements For the Three Months Ended September 30 July Sales in units 4,250 Sales $ 446,250 Cost of goods sold 267,750 Gross margin 178,500 Selling and administrative expenses Advertising expense 24,000 Shipping expense 34,500 Salaries and commissions 79,000 Insurance expense 6,950 Depreciation expense 16.700 Total selling and administrative expenses 161, 150 Net operating income $ 17,350 August 4,750 $ 498,750 299,250 199,500 September 5,250 $ 551,250 330, 750 220.500 24,000 36,700 85,100 6,950 16.700 169.450 $ 30,050 24,000 38,900 91,200 6,950 16,700 177,750 $ 42,750 ces 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 3. Redo the company's income statement at the 5,250-unit level of activity using the contribution format Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 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. Classification Expenses Cost of goods sold Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense

Answer 1

1. Classification of each of its expenes -

Fixed costs are costs which do not very with the change in the volume of activity.

Mixed Costs are the costs that contain both fixed and variable elements. They partly change with the change in the level of activity.

Variable costs are the cost which tends to directly vary with the volume of activity.

1. Classification of each of its expenses -

July 63 24000 8.12 Cost of unit sold Advertising Shipping Salaries and commission insurance expense Depreciation august september Classification 63 63 Per unit cost remain same therefore "variable" 24000 24000 does not change with the sales volume therefore "fixed" 7.73 7.41 per unit cost & total cost change with the sales volume therefore "mixed" 17.92 17.37 per unit cost & total cost change with the sales volume therefore "mixed" 6950.00 6950.00 does not change with the sales volume therefore "fixed" 16700.00 16700.00 does not change with the sales volume therefore "fixed" 18.59 6950.00 16700.00

2.using the high low method, identify the variable and fixed cost and represent it in Y = a+bx

Using High low method, variable cost per unit = (Highest activity cost - lowest activity cost)/(Highest activity unit - lowest activity units)

variable cost per unit for shipping = (38900 - 34500)/(5250 - 4250)

= 4400/1000

= $ 4.4

Fixed Cost = Highest Activity Cost – (Variable Cost Per Units * Highest Activity Units)

= 38900 - (4.4*5250)

= 38900 - 23100

= $ 15800

variable cost per unit for salaies & commission = (91200 - 79000)/(5250 - 4250)

= 12200/1000

= 12.2

Fixed cost = 91200 - (5250*12.2)

= 91200 - 64050

= 27150

Formula variable cost 4.4 per unit 12.2 per unit Shipping Salaries & commission Fixed cost 15800 Y= 27150 Y= 4.4 X 15800 + 27150 + 12.2 x

3. Preparation of income statement at 5250 level of activity, using the contribution format -

Moriesey & brown Itd. Contribution format income statement for the months ended September 30 September $ 551,250 a $ $ $ $ $ 330,750 64,050 23,100 417,900 133,350 b с Sales value variable expenes: Cost of goods sold Salaries & commission @ $ 12.2 Shipping expenses @ $4.4 Total Variable cost Contribution Margin (a-b) Fixed cost: Advertising Depreication Insurance expense Salaries & cmmission Shipping expenses Total Fixed cost $ $ $ $ $ $ 24,000 16,700 6,950 27,150 15,800 90,600 Net Income $ 42,750

Please check with your answer and let me know.