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: August 8,000 $ 760,000 456,000 304,000 September 8,500 $ 807,500 484,500 323,000 Morrisey & Brown, Ltd. Income Statements For the Three Months Ended September 30 July Sales in units 7,500 Sales $ 712,500 Cost of goods sold 427,500 Gross margin 285,000 Selling and administrative expenses: Advertising expense 39,600 Shipping expense 81,000 Salaries and commissions 135,000 Insurance expense 6,100 Depreciation expense 19,300 Total selling and administrative expenses 281,000 Net operating income $ 4,000 39,600 85,800 142,400 6,100 19,300 293,200 10,800 39,600 90,600 149,800 6,100 19,300 305,400 17,600 $ $ 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.

Expenses	Classification
Cost of goods sold	Variable
Advertising expense	Fixed
Shipping expense	Mixed
Salaries and commission	Mixed
Insurance expense	Fixed
Depreciation expense	Fixed

2.

	Variable cost		Fixed cost	Formula
Shipping expense	$9.6	per unit	$9,000	Y =	$9,000	+	$9.6	X
Salaries and commission	$14.8	per unit	$24,000	Y =	$24,000	+	$14.8	X

Shipping expense:

Variable cost per unit = $90,600-81,000 / 8,500-7,500

Variable cost per unit = $9,600 / 1,000 = $9.6 per unit

Fixed cost = $90,600 - 81,600 (8,500*$9.6) = $9,000

Salaries and commission:

Variable cost per unit = $149,800-135,000 / 8,500-7,500

Variable cost per unit = $14,800 / 1,000 = $14.8 per unit

Fixed cost = $149,800 - 125,800 (8,500*$14.8) = $24,000

Salaries and commission:

Variable cost per unit = $