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Morrisey & Brown, Ltd., of Sydney is a merchandising company that is the sole distributor of a product that is increasing in popularity among Australian
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 company's income statements for the three most recent months follow: Morrisey & Brown, Ltd. Income Statements For the Three Months Ended September 30 July Sales in units 4,000 Sales $ 400,000 Cost of goods sold 240,000 Gross margin 160,000 Selling and administrative expenses: Advertising expense 21,000 Shipping expense 34,000 Salaries and commissions 78,000 Insurance expense 6,000 Depreciation expense 15,000 Total selling and administrative expenses 154,000 Net operating income $ 6,000 August 4,500 $ 450,000 270,000 180,000 September 5,000 $ 500,000 300,000 200,000 21,000 36,000 84,000 6,000 15,000 162,000 $ 18,000 21,000 38,000 90,000 6,000 15,000 170,000 $ 30,000 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 company's income statement at the 5,000-unit level of activity using the contribution format
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