Question

For the Three Months Ended September 30 July Sales in units Sales Cost of goods sold Gross margin Selling and administrative expenses: 9,000 9,500 10,600 $1,05e,00e 630,000 420,000 - 945,000 567,006 378,000 $ 997,500 598,500 399,000 Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense 30,800 130,000 165,000 10,950 17,300 354,850 23,95e 30, 800 136,000 173,000 10,950 17,300 368,050 30,800 142,000 181,000 10,950 17,300 382,850 37,950 1 Total selling and administrative expenses Net operating income 30,950 Required: 1. By analyzing the data from the company's income statements, classify each of its expenses (including cos as either variable, fixed, or mixed. 2. Using the high-low method, separate each mixed expense into variable and fixed elements. Express the fixed portions of each mixed expense in the form ΥΞ a + bX.

Answer 1

Ans: Requirement 1)

Classification of Expenses
Expenses	Classification	July	August	September	Variable cost per unit=(cost for August - cost for July)/( sales in August- sales in July) in units	Variable cost in July ( 9000 units * variable cost per unit	Fixed cost = total cost - variable cost
Cost of goods sold	Variable	$567,000	$598,500	$1,050,000	$63	$567,000	$0
Advertising Expense	Fixed cost	$30,800	$30,800	$30,800	$0	$0	$30,800
Shipping Expense	Mixed Cost	$130,000	$136,000	$142,000	$12	$108,000	$22,000
Insurence Expense	Fixed cost	$10,950	$10,950	$10,950	$0	$0	$10,950
Depriciation expense	Fixed cost	$17,300	$17,300	$17,300	$0	$0	$17,300
Salaries and commission	Mixed Cost	$165,000	$173,000	$181,000	$16	$144,000	$21,000
Difference in sales unit	sales of August - sales of July
	(9500-9000)
	500 units

Requirement 2)

Expenses	Variable cost per unit=(cost for August - cost for July)/( sales in August- sales in July) in units		Fixed Cost	Formula, Y= A+BX
Cost of goods sold	$63	Per Unit	$ -	Y=	$ -	+	63 X
Advertising Expense	$0	Per Unit	$ 30,800.00	Y=	$ 30,800.00	+	0
Shipping Expense	$12	Per Unit	$ 22,000.00	Y=	$ 22,000.00	+	12 X
Insurance Expense	$0	Per Unit	$ 10,950.00	Y=	$ 10,950.00	+	0
Depreciation expense	$0	Per Unit	$ 17,300.00	Y=	$ 17,300.00	+	0
Salaries and commission	$16	Per Unit	$ 21,000.00	Y=	$ 21,000.00	+	16 X

Requirement 3)

Morrisey & Brown Ltd.
Income Statement
For the month ended on September 30
Particulars	Variable cost per Unit		Amount ($)
Variable expense			( Variable cost per unit*10,000 units)
Cost of goods sold	$63		$ 630,000.00
Shipping Expense	$12		$ 120,000.00
Salaries and commission	$16		$ 160,000.00
Fixed Expense
Advertising Expense			$ 30,800.00
Shipping Expense			$ 22,000.00
Insurance Expense			$ 10,950.00
Depreciation expense			$ 17,300.00
Salaries and commission			$ 21,000.00
Total Expense	A		$ 1,012,050.00
Revenue	B		$ 1,050,000.00
Income	(B-A)		$ 37,950.00