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		1,900				4,900			5,900
Sales revenue		323,000				833,000			1,003,000
Cost of goods sold		134,900				347,900			418,900
Gross margin		188,100				485,100			584,100
Selling and administrative expenses:
Shipping expense		34,100				64,100			74,100
Advertising expense		58,000				58,000			58,000
Salaries and commissions		109,800				235,800			277,800
Insurance expense		7,200				7,200			7,200
Depreciation expense		48,000				48,000			48,000
Total selling and administrative expenses		257,100				413,100			465,100
Net operating income (loss)		(69,000)				72,000			119,000

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 5,900-unit level of activity using the contribution format.

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.)