Question
Morrisey & Brown, Limited, of Sydney is a merchandising company that is the sole distributor of a product that is increasing in popularity among Australian
Morrisey & Brown, Limited, of Sydney is a merchandising company that is the sole distributor of a product that is increasing in popularity among Australian consumers. The companys income statements for the three most recent months follow:
Morrisey & Brown, Limited Income Statements For the Three Months Ended September 30 | |||
July | August | September | |
---|---|---|---|
Sales in units | 7,000 | 7,500 | 8,000 |
Sales | $ 735,000 | $ 787,500 | $ 840,000 |
Cost of goods sold | 441,000 | 472,500 | 504,000 |
Gross margin | 294,000 | 315,000 | 336,000 |
Selling and administrative expenses: | |||
Advertising expense | 36,400 | 36,400 | 36,400 |
Shipping expense | 75,000 | 79,400 | 83,800 |
Salaries and commissions | 120,000 | 127,200 | 134,400 |
Insurance expense | 8,400 | 8,400 | 8,400 |
Depreciation expense | 22,800 | 22,800 | 22,800 |
Total selling and administrative expenses | 262,600 | 274,200 | 285,800 |
Net operating income | $ 31,400 | $ 40,800 | $ 50,200 |
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 companys income statement at the 8,000-unit level of activity using the contribution format.
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