Morrisey & Brown, Limited

Income Statements

For the Three Months Ended September $30$

July August September

Sales in units $4,5005,0005,500$

Sales $ $495,000$ $ $550,000$ $ $605,000$

Cost of goods sold $297,000330,000363,000$

Gross margin $198,000220,000242,000$

Selling and administrative expenses:

Advertising expense $30,60030,60030,600$

Shipping expense $35,00037,40039,800$

Salaries and commissions $80,00086,20092,400$

Insurance expense $9,9509,9509,950$

Depreciation expense $21,80021,80021,800$

Total selling and administrative expenses $177,350185,950194,550$

Net operating income $ $20,650$ $ $34,050$ $ $47,450$

Required:

$1.$ By analyzing the data from the company's income statements, classify each of its expenses $($including cost of goods sold$)$ as either variable, fixed, or mixed.

$2.$ Using the high$-$low method, separate each mixed expense into variable and fixed elements. Express the variable and fixed portions of each mixed expense in the form Y $=$ a $+$ bX$.$

$3.$ Redo the company$$s income statement at the $5,500-$unit level of activity using the contribution format.