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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
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 Sales in units Sales Cost of goods sold Gross margin Selling and administrative expenses: Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense Total selling and administrative expenses Net operating income July 5,750 August 6,250 September 6,750 $ 632,500 379,500 253,000 $ 687,500 412,500 275,000 $ 742,500 445,500 297,000 28,600 28,600 28,600 57,500 60,900 64,300 105,000 111,700 118,400 7,700 7,700 7,700 24,600 223,400 24,600 233,500 24,600 243,600 $ 29,600 $ 41,500 $ 53,400 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. 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 6,750-unit level of activity using the contribution format.
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