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		2,600				4,000			7,300
Sales revenue		520,000				800,000			1,460,000
Cost of goods sold		213,200				328,000			598,600
Gross margin		306,800				472,000			861,400
Selling and administrative expenses:
Shipping expense		39,900				55,300			91,600
Advertising expense		57,000				57,000			57,000
Salaries and commissions		143,600				208,000			359,800
Insurance expense		7,500				7,500			7,500
Depreciation expense		47,800				47,800			47,800
Total selling and administrative expenses		295,800				375,600			563,700
Net operating income (loss)		11,000				96,400			297,700

(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 7,300-unit level of activity using the contribution format.

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