Problem 5A-7 (Algo) Cost Behavior; High-Low Method; Contribution Format Income Statement (LO5-10) 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: Sales September 7,500 $750,000 450,000 300,000 Morrisey & Brown, Ltd. Income Statements For the Three Months Ended September 30 July August Sales in units 6,500 7,000 $650,000 $ 700,000 Cost of goods sold 390,000 420,000 Gross margin 260,000 280,000 Selling and administrative expenses: Advertising expense 25,800 25,800 Shipping expense 69,000 73,000 Salaries and commissions 118,000 125,000 Insurance expense 9,750 9,750 Depreciation expense 16,400 16,400 Total selling and administrative expenses 238,950 249,950 Net operating income $ 21,050 30,050 25,800 77,000 132,000 9,750 16,400 260,950 $ 39,050 Required: 1. By analyzing the data from the company's income statements, classify each of its 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. Express the variable and fixed portions of each mixed expense in the form Y = a + bx. 3. Redo the company's income statement at the 7,500-unit level of activity using the contribution format. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 By analyzing the data from the company's income statements, classify each of its expenses (including cost of goods sold) as either variable, fixed, or mixed. Classification Expenses Cost of goods sold Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense Required 1 Required 2 Required 3 Using the high-low method, separate each mixed expense into variable and fixed elements. Express the variable and fixed portions of each mixed expense in the form Y = a + bX. (Round the Variable cost per unit to 1 decimal place.) Variable Cost Fixed Cost Formula Y = per unit + x per unit Y = + Required 1 Required 2 Required 3 Redo the company's income statement at the 7,500-unit level of activity using the contribution format. Morrisey & Brown, Ltd. Income Statement For the Month Ended September 30 Variable expenses: Fixed expenses