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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 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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