Question

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 4,000 4,500 September 5,000 Sales in units Sales Cost of goods sold $400,000 240,000 $450.000 270,000 $500,000 300,000 Gross margin 160,000 180,000 200,000 Selling and administrative expenses: Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense 21,000 34,000 78.000 6,000 15,000 21,000 36,000 84,000 6,000 15,000 21.000 38,000 90,000 6,000 15,000 Total selling and administrative expenses 154.000 162,000 170,000 Net operating income $ 6,000 $18,000 $ 30,000

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		5,000	38,000
	low		4,000	34,000
	difference		1,000	4,000
	variable expense per unit 4000/1000 = $4
	fixed expense =38000-5000*4 =18000
	Salaries and commission
			units	cost
	high		5,000	90,000
	low		4,000	78,000
	difference		1,000	12,000
	Variable expense per unit = 12000/1000=$12.00
	fixed expense = 90000-5000*12 =30000
	cost formula
			Variable cost		Fixed cost	Formula
	shipping expense		4	per unit	18,000	Y=	18,000	+	4	per unit
	Salaries & commission		12	per unit	30,000	Y=	30,000	+	12	per unit
3)	Sales in units				5000
	Sales				500,000
	Variable expense
	Cost of goods sold			300,000
	Shipping expense			20,000
	Salaries and commission			60000
					380,000
	Contribution margin				120,000
	Fixed expense
	Advertising expense			21,000
	Shipping expense			18,000
	Salaries & commission			30,000
	insurance expense			6,000
	Depreciation expense			15,000
					90,000
	Net income				30,000