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Morrisey & Brown, Ltd., of Sydney, Australia, is a merchandising firm that is the sole distributor of a product that is increasing in popularity among
Morrisey & Brown, Ltd., 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: Quarter 3 6,320 MORRISEY & BROWN, LTD. Income Statements For the Four Quarters Ending December 31 Quarter 1 Quarter 2 Sales in units 5,600 5,100 Sales revenue A$560,000 A$510,000 Less: Cost of goods sold 336,000 306,000 Gross margin 224,000 204,000 Less: Operating expenses: Advertising expense 22,100 22,100 Shipping expense 38,400 40,400 Salaries and commissions 84,600 80,200 Insurance expense 7,100 7,100 Depreciation expense 16,100 16,100 Total operating expenses 168,300 165,900 Net income A$ 55,700 A$ 38,100 A$632,000 379,200 252,800 Quarter 4 5,700 A$570,000 342,000 228,000 22,100 45, 280 94,840 7,100 16,100 185,420 A$ 67,380 22,100 40, 180 91,380 7,100 16,100 176,860 A$ 51,140 (Note: Morrisey & Brown, Ltd.'s Australian-formatted income statement has been recast into the format common in Canada. The Australian dollar is denoted by A$.) Required: 1. Identify each of the company's expenses (including cost of goods sold) as being variable, fixed, or mixed. Expenses Classification Cost of goods sold Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense 2-a. Using the high-low method, separate each mixed expense into variable and fixed elements. Variable Cost Fixed Cost A$ per unit A$ A$ per unit A$ A$ per unit AS 2-b. Using the high-low method, state the cost formula for each mixed expense. Y= A$ + A$ Y= A$ + A$ X X X Y= A$ + A$ 3. Redo the company's income statement at the 6,320-unit level of activity using the contribution format. MORRISEY & BROWN, LTD. Contribution Margin Income Statement For the Quarter Ended September 30 Sales in units A $ Less: Variable expenses: A$ Less: Fixed expenses: A$ 4. Assume that the company's sales are projected to be 5,050 units in the next quarter. Prepare a contribution margin income statement. MORRISEY & BROWN, LTD. Contribution Margin Projected Income Statement For the Quarter Ended March 31 Sales in units A$ Less: Variable expenses: A$ Less: Fixed expenses: A$
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