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PROBLEM 3-12 Cost Behavior; High-Low Method; Contribution Format Income Statement [L01, LO3, LO4] Morrisey & Brown, Ltd., of Sydney is a merchandising company that is
PROBLEM 3-12 Cost Behavior; High-Low Method; Contribution Format Income Statement [L01, LO3, LO4] 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 July August Sales in units 4,000 4,500 Sales revenue A$400,000 A$450,000 Cost of goods sold 240,000 270,000 Gross margin 160,000 180,000 Selling and administrative expenses: Advertising expense 21,000 21,000 Shipping expense 34,000 36,000 Salaries and commissions 78,000 84,000 Insurance expense 6,000 6,000 Depreciation expense 15,000 15,000 Total selling and administrative expenses 154,000 162,000 Net operating income AS 6,000 A$ 18,000 September 5,000 A$500,000 300,000 200,000 21,000 38,000 90,000 6,000 15,000 170,000 AS 30,000 (Note: Morrisey & Brown, Ltd.'s Australian-formatted income statement has been recast in the format common in the United States. The Australian dollar is denoted here by A$.) 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 5,000-unit level of activity using the contribution format
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