Morrisey & Brown, Ltd., 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, Ltd. Income Statements For the Three Months Ended September 30 July August September Sales in units 4,000 4,500 5,000 Sales $ 400,000 $ 450,000 $ 500,000 Cost of goods sold 240,000 270,000 300,000 Gross margin 160,000 180,000 200,000 Selling and administrative expenses: Advertising expense 21,000 21,000 21,000 Shipping expense 34,000 36,000 38,000 Salaries and commissions 78,000 84,000 90,000 Insurance expense 6,000 6,000 6,000 Depreciation expense 15,000 15,000 15,000 Total selling and administrative expenses 154,000 162,000 170,000 Net operating income $ 6,000 $ 18,000 $ 30,000 Required:

1. Identify each of the companys expenses (including cost of goods sold) as either variable, fixed, or mixed.

expenses	classifications
cost of goods sold
advertising expenses
shipping expenses
salaries and comissions
insurance expenses
depreciation expenses

s

2. Using the high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense.

variable cost	fixed cost	forumula
per unit	Y=	+ (per unit)

3. Redo the companys income statement at the 5,000-unit level of activity using the contribution format.