Gaining rapid market acceptance


Problem: Mankel LTD., a merchandising company, is the exclusive distributor of a product that is gaining rapid market acceptance. The company's revenues and expenses (in British pounds) for the last three months are given:

Mankel Ltd.

Comparative Income Statement

For the three months ended June 30

                                April      May      June
Sales in units            3,000     3,750    4,500

Sales in revenue     420,000  525,000  630,000
Cost of goods sold   168,000  210,000  252,000
Gross margin          252,000   315,000  378,000

Selling and Administrative expenses:

Shipping expense               44,000     50,000    56,000
Advertising expense            70,000    70,000    70,000
Salaries and commissions  107,000    125,000    143,000
Insurance expense               9,000        9,000    9,000
Depreciation expense          42,000     42,000    42,000

Total selling and administrative 272,000    296,000    320,000

Expenses

Net operating income (loss)    (20,000)    19,000    58,000

1) I need to identify each of the company's expenses (including cost of goods sold) as variable, fixed, or mixed.

2) Using a 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 4,500 unit level of activity using the contribution format.

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Marketing Management: Gaining rapid market acceptance
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