Question

Arnall Ltd., a British merchandising company, is the exclusive distributor of a product that is gaining rapid market acceptance. The company's revenues and expenses (in British pounds) for the last three months are given below: Arnall Ltd. Comparative Income Statements For the Three Months Ended June 30 April 2,900 Sales in units May 6,200 June 7,500 Sales revenue Cost of goods sold £ 580,000 249,400 £ 1,240,000 533,200 £ 1,500,000 645,000 Gross margin 330,600 706,800 855,000 Selling and administrative expenses: Shipping expense Advertising expense Salaries and commissions Insurance expense Depreciation expense 48,800 58,000 149,700 6,400 39,100 81,800 58,000 291,600 6,400 39,100 94,800 58,000 347,500 6,400 39,100 Total selling and administrative expenses 302,000 476,900 545,800 Net operating income (loss) £ 28,600 £ 229,900 £ 309,200 (Note: Arnall Ltd.'s income statement has been recast in the functional format common in the United States. The British currency is the pound, denoted by £.)

Answer 1

2.

Shipping Expense Salaries and Commissions Variable Cost Fixed Cost Formula £10 Per Unit £19,800 Y = Fixed Cost + No. of Units sales X Variable Cost per Unit £43 Per Unit £25,000 Y = Fixed Cost + No. of Units sales X Variable Cost per Unit

3.

£1,500,000 Arnall Ltd. Income Statement For the Month Ended June 30 Sales Revenue (A) Variable expenses: Cost of goods sold £645,000 Shipping expense £75,000 Salaries and commission expense £322,500 Total Variable expense (B) £1,042,500 Fixed Expenses: Shipping expense Advertising expense Salaries and commission expense Insurance Depreciation £19,800 £58,000 £25,000 £6,400 £39,100 Total Fixed Expense (C) Net Operating Income (A-B-C) £148,300 £309,200

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