Morrisey & Brown, Ltd., of Sydney, Australia, is a merchandising firm 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 Four Quarters Ending December 31 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Sales in units 5,700 5,200 6,440 5,800 Sales revenue A$570,000 A$520,000 A$644,000 A$580,000 Less: Cost of goods sold 342,000 312,000 386,400 348,000 Gross margin 228,000 208,000 257,600 232,000 Less: Operating expenses: Advertising expense 22,200 22,200 22,200 22,200 Shipping expense 38,800 40,800 45,760 40,560 Salaries and commissions 85,200 80,400 95,280 91,960 Insurance expense 7,200 7,200 7,200 7,200 Depreciation expense 16,200 16, 200 16,200 16,200 Total operating expenses 169,600 166,800 186,640 178, 120 Net income A$ 58,400 A$ 41,200 A$ 70,960 A$ 53,880 (Note: Morrisey & Brown, Ltd.'s Australian-formatted income statement has been recast into the format common in Canada. The Australian dollar is denoted by A$.) Required: 1. Identify each of the company's expenses (including cost of goods sold) as being variable, fixed, or mixed. Answer is complete and correct. Classification Variable Fixed ? Expenses Cost of goods sold Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense Mixed Mixed Fixed Fixed 2-a. Using the high-low method, separate each mixed expense into variable and fixed elements. Answer is complete and correct. Variable Cost Fixed Cost A$ 4 per unit A$ Shipping expense Salaries and commissions expense 20,000 18,000 A$ 12 per unit A$ A$ per unit A$ 2-b. Using the high-low method, state the cost formula for each mixed expense. Answer is complete and correct. Y= A$ + A$ 4 ? Shipping expense Salaries and commissions expense 20,000 18,000 Y= A$ + A$ 12 ? Y= A$ + A$ X 3. Redo the company's income statement at the 6,440-unit level of activity using the contribution format. X Answer is not complete. MORRISEY & BROWN, LTD. Contribution Margin Income Statement For the Quarter Ended September 30 Sales in units 6,440 Sales revenue A$ 644,000 Less: Variable expenses: Cost of goods sold A$ 386,400 Shipping expense Salaries and commissions expense 25,760 77,280 489,440 154,560 Less: Fixed expenses: Advertising expense Shipping expense Salaries and commissions expense 22,200 20,000 18,000 7,200 16,200 Insurance expense Depreciation expense 83,600 Net income A$ 70,960 4. Assume that the company's sales are projected to be 5,100 units in the next quarter. Prepare a contribution margin income statement. X Answer is not complete. MORRISEY & BROWN, LTD. Contribution Margin Projected Income Statement For the Quarter Ended March 31 Sales in units 5,100 Sales revenue A$ 510,000 A$ Less: Variable expenses: Cost of goods sold Shipping expense Salaries and commissions expense OOO 306,000 20,400 61,200 387,600 122,400 Less: Fixed expenses: Advertising expense Shipping expense Salaries and commissions expense 22,200 20,000 18,000 7,200 Insurance expense Depreciation expense 16,200 83,600 38,800 Net income A$
