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 8,750 9,250 9,750

Sales $962,500 $1,017,500 $1,072,500

Cost of goods sold 577,500 610,500 643,500

Gross margin 385,000 407,000 429,000

Selling/admin Ex:

Advertising expense 31,000 31,000 31,000

Shipping expense 120,000 125,800 131,600

Salaries/commissions 160,000 167,900 175,800

Insurance expense 6,950 6,950 6,950

Depreciation expense 16,700 16,700 16,700

Total selling/admin ex: 334,650 348,350 362,050

Net operating income $50,350 $58,650 $66,950

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 9,750-unit level of activity using the contribution format.