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	5,500	6,000	6,500
Sales	$ 577,500	$ 630,000	$ 682,500
Cost of goods sold	346,500	378,000	409,500
Gross margin	231,000	252,000	273,000
Selling and administrative expenses:
Advertising expense	24,200	24,200	24,200
Shipping expense	57,000	60,200	63,400
Salaries and commissions	104,000	110,600	117,200
Insurance expense	9,200	9,200	9,200
Depreciation expense	19,600	19,600	19,600
Total selling and administrative expenses	214,000	223,800	233,600
Net operating income	$ 17,000	$ 28,200	$ 39,400

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.

Expenses	Classification
Cost of goods sold
Advertising expense
Shipping expense
Salaries and commissions
Insurance expense
Depreciation expense

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.

	Variable Cost		Fixed Cost	Formula
		per unit		Y =		+		X
		per unit		Y =		+		X

3. Redo the companys income statement at the 6,500-unit level of activity using the contribution format.