Morris & Brown, Ltd
Income Statements
For the Three Months Ended September 30
July August September
Sales in units 4000 4500 5000
Sales revenue A$400,000 A$450,000 A$500,000
Cost of good sold 240,000 270,000 300,000
Gross margin 160,000 180,000 200,000
Selling and administrative expenses:
Advertising expense 21,000 21,000 21,000
Shipping expense 34,000 36,000 38,000
Salaries& commission 78,000 84,000 90,000
Insurance expense 6,000 6,000 6,000
Depreciate expense 15,000 15,000 15,000
Total selling& admin expens 154,000 162,000 170,000
Net operation income A$ 6000 A$ 18,000 A$30,000
(Note: Morrisey & Brown, Ltd. Australian- formatted income statement has been recast in the format common in the United States. The Australian dollar is denoted here by A$.)
Question:
(1) Identify each of the company's expenses (including cost of good sold) as either variable, fixed, or mixed.
(2) Using the 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 5,000-unit level of activity using the contribution format.