required:

1. Identify each of the companys expense (including cost of goods sold) as being 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.

4. Assume that the companys sales are projected to be 4,500 units in the next quarter. Prepare a contribution margin income statement.

PROBLEM 6-4 Examining Cost Behaviour; High-Low Analysis; Contribution Margin Income Statement [LO1 - CC1, 3, 6; L02 - CC9; LO3 - CC12] CHECK FIGURE (2) Shipping: A$18,000 per month plus A$4 per unit Morrisey & Brown, Ltd., of Sydney, Australia, is a merchandising firm that is the sole distributor of a prod- uct 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 Four Quarters Ending December 31 Quarter 1 Quarter 2 Quarter 3 Quarter 4 4,400 4,000 5,000 4,600 A$440,000 264,000 176,000 A$400,000 240,000 160,000 A$500,000 300,000 200,000 A$460,000 276,000 184,000 Sales in units Sales revenue Less: Cost of goods sold Gross margin Less: Operating expenses: Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense Total operating expenses Net income 21,000 35,000 83,000 6,000 15,000 160,000 A$ 16,000 21,000 34,000 78,000 6,000 15,000 154,000 A$ 6,000 21,000 38,000 90,000 6,000 15,000 170,000 A$ 30,000 21,000 36,000 85,000 6,000 15,000 163,000 A$ 21,000 (Note: Morrisey & Brown, Ltd.'s Australian-formatted income statement has been recast into the format common in Canada. The Australian dollar is denoted by AS.)