Arnall Ltd., a British merchandising company, is the exclusive distributor of a product that is gaining rapid market acceptance. The companys 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 May June Sales in units 3,000 6,000 7,700 Sales revenue 510,000 1,020,000 1,309,000 Cost of goods sold 234,000 468,000 600,600 Gross margin 276,000 552,000 708,400 Selling and administrative expenses: Shipping expense 49,000 88,000 110,100 Advertising expense 48,000 48,000 48,000 Salaries and commissions 152,000 278,000 349,400 Insurance expense 6,000 6,000 6,000 Depreciation expense 30,800 30,800 30,800 Total selling and administrative expenses 285,800 450,800 544,300 Net operating income (loss) (9,800) 101,200 164,100 (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 .)

Required: 1. Identify each of the companys expenses (including cost of goods sold) as either variable, fixed, or mixed.

Expenses	Classification
Cost of goods sold
Shipping expense
Advertising expense
Salaries and commissions
Insurance expense
Depreciation expense

2. Using the high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense. (Enter mixed expenses in the order of company expenses provided under question.)

	Variable Cost		Fixed Cost	Formula
		per unit		Y =		+		X
		per unit		Y =		+		X

3. Redo the companys income statement at the 7,700-unit level of activity using the contribution format.

Arnall Ltd.
Income Statement
For the Month Ended June 30
Variable expenses:
Total variable expenses		0
		0
Fixed expenses:
Total fixed expenses		0
		0