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

2,500

5,600

7,300

Sales revenue

500,000

1,120,000

1,460,000

Cost of goods sold

205,000

459,200

598,600

Gross margin

295,000

660,800

861,400

Selling and administrative expenses:

Shipping expense

43,700

80,900

101,300

Advertising expense

52,000

52,000

52,000

Salaries and commissions

148,000

296,800

378,400

Insurance expense

7,400

7,400

7,400

Depreciation expense

32,900

32,900

32,900

Total selling and administrative expenses

284,000

470,000

572,000

Net operating income (loss)

11,000

190,800

289,400

Arnall Ltd. Comparative Income Statements For the Three Months Ended June 30
		April				May			June
Sales in units		2,500				5,600			7,300
Sales revenue		500,000				1,120,000			1,460,000
Cost of goods sold		205,000				459,200			598,600
Gross margin		295,000				660,800			861,400
Selling and administrative expenses:
Shipping expense		43,700				80,900			101,300
Advertising expense		52,000				52,000			52,000
Salaries and commissions		148,000				296,800			378,400
Insurance expense		7,400				7,400			7,400
Depreciation expense		32,900				32,900			32,900
Total selling and administrative expenses		284,000				470,000			572,000
Net operating income (loss)		11,000				190,800			289,400

(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	Variable
Shipping expense	Mixed
Advertising expense	Fixed
Salaries and commissions	Mixed
Insurance expense	Fixed
Depreciation expense	Fixed

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
Sales revenue
Variable expenses:
Cost of goods sold
Shipping expense
Salaries and commission expense
Total variable expenses		0
Contribution margin		0
Fixed expenses:
Shipping expense
Advertising expense
Salaries and commission expense
Insurance
Depreciation
Total fixed expenses		0
Net operating income		0