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PROBLEM 2-18 Cost Behavior; High-Low Method; Contribution Format Income Statement LO3, LO4, LO5] Frankel Ltd., a British merchandising company, is the exclusive distributor of a

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PROBLEM 2-18 Cost Behavior; High-Low Method; Contribution Format Income Statement LO3, LO4, LO5] Frankel Ltd., a British merchandising company, is the exclusive distributor of a product that is gaining rapid market acceptance. The company's revenues and expenses (in British pounds) for the last three months are given below: Frankel Ltd. Comparative Income Statements For the Three Months Ended June 30 May June April 4,500 3:000 3,750 Sales in units 2630,000 2420,000 168,000 252,000 2525,000 Sales revenue 252,000 378,000 210,000 Cost of goods sold. Gross margin .... Selling and administrative expenses: Shipping expense. Advertising expense.. 315,000 50,000 56,000 70,000 44,000 70,000 70,000 125,000 9,000 143,000 107,000 Salaries and commissions Insurance expense... Depreciation expense.. Total selling and administrative expenses Net operating income (loss)... 9,000 9,000 42,000 272,000 (20,000) 42,000 42,000 296,000 2 19,000 320,000 58,000 (Note: Frankel Ltd.'s income statement has been recast in the functional format common in the United States. The British currency is the pound, denoted by .) Required: 1. Identify each of the company's 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 company's income statement at the 4,500-unit level of activity using the contribution format

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