Question
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 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. |
2. | Using the high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense. |
3. | Redo the companys income statement at the 5,000-unit level of activity using the contribution format. |
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