Question

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 Three Months Ending September 30 July August 6,500 September 7,000 6,000 Sales in units Sales revenue Less: Cost of goods sold A$ 648,000 384,000 A$ 702,000 416,000 A$ 756,000 448,000 Gross margin 308,000 264,000 286,000 Less: Operating expenses: Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense 23,000 42,000 90,000 8,000 17,000 23,000 44,000 96,000 8,000 17,000 23,000 45,600 101,600 8,000 17,000 Total operating expenses 180,000 188,000 195,200 A$ 84,000 AS 98,000 AS 112,800 Net income (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.) Required: 1. İdentify each of the company's expenses (including cost of goods sold) as being variable, fixed, or mixed. Expenses Classification Cost of goods sold Advertising expense Shipping expense Salaries and commissions Insurance expense Denreciation eynense

Answer 1

1)	Expenses				Classification
	cost of goods sold				Variable
	Advertising expense				fixed
	shipping expense				mixed
	Salaries and commission				mixed
	insurance expense				fixed
	Depreciation expense				fixed
2)	High low method
	shipping expense
			units	cost
	high		7,000	45,600
	low		6,000	42,000
	difference		1,000	3,600
	variable expense per unit 3600/1000 = $3.6
	fixed expense = 45600-7000*3.6            = $20400
	Salaries and commission
			units	cost
	high		7,000	101,600
	low		6,000	90,000
	difference		1,000	11,600
	Variable expense per unit = 11600/1000=$11.6
	fixed expense = 101600-7000*11.6=20,400
	cost formula
2.a)			Variable cost		Fixed cost
	shipping expense		3.6	per unit	20,400
	Salaries & commission		11.6	per unit	20,400
2b)
			Formula
	shipping expense		Y=	20,400	+	3.6	X
	Salaries & commission		Y=	20,400	+	11.6	X
3)	Sales in units				7000
	Sales				756,000
	Variable expense
	Cost of goods sold			448,000
	Shipping expense			25,200
	Salaries and commission			81200
					554,400
	Contribution margin				201,600
	Fixed expense
	Advertising expense			23,000
	Shipping expense			20,400
	Salaries & commission			20,400
	insurance expense			8,000
	Depreciation expense			17,000
					88,800
	Net income				112,800