Reference no: EM131819914

Problem

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	September
Sales in units	4,000	4,500	5,000
Sales	$400,000	$450,000	$500,000
Cost of goods sold	240,000	270,000	300,000
Gross margin	160,000	180,000	200,000
Selling and administrative expenses:
Advertising expense	21,000	21,000	21,000
Shipping expense	34,000	36,000	38,000
Salaries and commissions	78,000	84,000	90,000
Insurance expense	6,000	6,000	6,000
Depreciation expense	15,000	15,000	15,000
Total selling and administrative expenses	154,000	162,000	170,000
Net operating income	$ 6,000	$ 18,000	$ 30,000

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.