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	Classification
Cost of goods sold
Advertising expense
Shipping expense
Salaries and commissions
Insurance expense
Depreciation expense

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	Formula
		per unit		Y =		+		per unit
		per unit		Y =		+		per unit

3.

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

Morrisey & Brown, Ltd.
Income Statement
For the Month Ended September 30
Variable expenses:
Fixed expenses: