Problem:
Mankel LTD., a merchandising company, is the exclusive distributor of a product that is gaining rapid market acceptance. The company's revenues and expenses (in British pounds) for the last three months are given:
Mankel Ltd.
Comparative Income Statement
For the three months ended June 30
April May June
Sales in units 3,000 3,750 4,500
Sales in revenue 420,000 525,000 630,000
Cost of goods sold 168,000 210,000 252,000
Gross margin 252,000 315,000 378,000
Selling and Administrative expenses:
Shipping expense 44,000 50,000 56,000
Advertising expense 70,000 70,000 70,000
Salaries and commissions 107,000 125,000 143,000
Insurance expense 9,000 9,000 9,000
Depreciation expense 42,000 42,000 42,000
Total selling and administrative 272,000 296,000 320,000
Expenses
Net operating income (loss) (20,000) 19,000 58,000
1. I need to identify each of the company's expenses (including cost of goods sold) as variable, fixed, or mixed.
2. Using a 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 4,500 unit level of activity using the contribution format.