Redo the company's income statement at the 5,000-unit level of activity using the contribution format.
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 |
September |
| Sales in units |
4,000 |
4,500 |
5,000 |
| Sales |
$400,000 |
$450,000 |
|
|
$500,000 |
| Cost of goods 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 and commissions |
78,000 |
84,000 |
|
|
90,000 |
| Insurance expense |
6,000 |
6,000 |
|
|
6,000 |
| Depreciation expense |
15,000 |
15,000 |
|
|
15,000 |
| |
|
|
| Total selling and administrative expenses |
154,000 |
162,000 |
|
|
170,000 |
| |
|
|
| Net operating income |
$ 6,000 |
$ 18,000 |
|
|
$ 30,000 |
2. Using the high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense.
Redo the company's income statement at the 5,000-unit level of activity using the contribution format.