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
|
1,700
|
3,000
|
4,500
|
|
Sales revenue
|
A$ 306,000
|
A$ 540,000
|
A$ 810,000
|
|
Cost of goods sold
|
112,200
|
198,000
|
297,000
|
|
Gross margin
|
193,800
|
342,000
|
513,000
|
|
Selling and administrative expenses:
|
|
|
|
|
Advertising expense
|
70,900
|
70,900
|
70,900
|
|
Shipping expense
|
38,500
|
52,800
|
69,300
|
|
Salaries and commissions
|
98,600
|
146,700
|
202,200
|
|
Insurance expense
|
9,900
|
9,900
|
9,900
|
|
Depreciation expense
|
43,000
|
43,000
|
43,000
|
|
Total selling and administrative expenses
|
260,900
|
323,300
|
395,300
|
|
Net operating income (loss)
|
A$ (67,100
|
A$ 18,700
|
A$ 117,700
|
(Note: Morrisey & Brown, Ltd.'s Australian-formatted income statement has been recast in the format common in the United States. The Australian dollar is denoted here by A$.)
Requirement 1: (a) Using the high-low method, separate each mixed expense into variable and fixed elements.
(b) State the cost formula for each mixed expense. (X represents sales in units).
Requirement 2: Redo the company's income statement at the 4,500-unit level of activity using the contribution format.