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Morrisey & Brown, Lid., of Sydney, Australia, is a merchandising firm that is the sole distributor of a product that is increasing in popularity among
Morrisey & Brown, Lid., of Sydney, Australia, is a merchandising firm 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: MORRISEY & BROWN, LTD. Income Statements For the Four Quarters Ending December 31 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Sales in units 4,490 4,000 5,000 4, 600 Sales revenue A$440, 000 A$400, 006 A$500, 006 4$460, 900 Less: Cost of goods sold 264,090 240, 006 300,000 276,000 Gross margin 176, 090 160, 000 200, 000 184,000 Less: Operating expenses: Advertising expense 21, 006 21, 006 21, 000 21, 000 Shipping expense 35, 090 34,000 38, 000 36,000 Salaries and commissions 83, 006 78, 000 90, 000 85,000 Insurance expense 6,000 6,000 6, 000 6,000 Depreciation expense 15, 006 15, 006 15, 000 15, 000 Total operating expenses 160,006 154, 000 170, 000 163, 000 Net income A$ 16,000 A$ 6,000 A$ 30,000 A$ 21,000 (Note: Morrisey & Brown, Lid.'s Australian-formatted income statement has been recast into the format common in Canada. The Australian dollar is denoted by A$.) Required: 1. Identify each of the company's expenses (including cost of goods sold) as being variable, fixed, or mixed. Expenses Classification Cost of goods sold Advertising expense . . .. Shipping expense Salaries and commissions Insurance expense Fixed Depreciation expense Mixed Variable2-a. Using the high-low method, separate each mixed expense into variable and fixed elements. Variable Cost Fixed Cost AS per unit per unit AS AS per unit AS 2-b. Using the high-low method, state the cost formula for each mixed expense. Y= A$ + AS X Y= A$ X Y= AS AT X3. Redo the company's income statement at the 5,000unit level of activityr using the contribution format. 4. Assume that the company's sales are projected to be 4,500 units in the next quarter. Prepare a contribution margin income statement. I_l_ I_I_ I_ I_ I_
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