3 Morisey & Brown, Ltd, of Sydney is a merchandising company that is the sole di
ID: 2336953 • Letter: 3
Question
3 Morisey & Brown, Ltd, of Sydney is a merchandising company that is the sole distributor of a product that is incresing Australian consumers. The company's income statements for the three most recent months folow among Horrisey &Brown,Ltd. Income Statements For the Three Months Ended September 30 uly 7,000 7,500 8, 000 Sales in units 8ook sales $735, 000 $787,500$840,000 472,500 504, 000 336,000 Cost of goods sold Gross margin Selling and administrative 4 2,000 10 Print 36, 400 75,000 36,400 79,400 Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense 36,400 83,800 134,400 8,400 120,000 127,200 8,400 8,400 Total selling and administrative expenses Net operating income 22,800 22,800 800 262,600 274,200 285,800 S 31,400 40,800 50,200 Required: 1. By analyzing the data from the company's income statements, classity each of its expenses (including cost of goods sold) as either variable, fixed, or mixed 2. Using the high-low method, separate each mised expense into variable and fixed elements. Express the variable and fixed portions of each mited expense in the form r·a· Complete this question by entering your answers in the tabs below Required Required By analyzing the data from the company's income statements, classify each of its expenses (including cost of goods sold) as either variable, fixed, or mixed. Cost of goods sold Salaries and Required 2 >Explanation / Answer
1) Variable cost per unit remains cost and total variable cost change in proportion to change in units. Total Fixed cost always remain constant. Mixed cost is the cost which includes both fixed and variable component.
In the given case, Advertising expense, insurance expense and depreciation expense are fixed costs (as these costs remain constant over three months). Cost of goods sold is a variable cost as it remains constant per unit [i.e. $63 per unit each month ($441,000/7,000 units)].
Shipping expense and Salaries and Commissions are mixed costs because these are neither fixed over three months nor constant per unit of output.
Classification of each expense is shown as follows:- (Amounts in $)
2) The highest units are sold in September (i.e. 8,000 units) and lowest units are sold in July (i.e. 7,000 units).
Variable Shipping exp. per unit
= [(Shipping exp in Sep - Shipping Exp in July)/(Units in Sept - Units in July)]
= [($83,800-$75,000)/(8,000-7,000)]
= $8,800/1,000 units = $8.80 per unit
Fixed cost = $83,800 - ($8.80 per unit*8,000)
= $83,800 - $70,400 = $13,400
Y = Fixed cost+Variable Cost per unit*X
Y = 13,400+8.80X (Shipping Expense)
Variable Salaries and Commissions per unit
= [(Salaries in Sep - Salaries in July)/(Units in Sept - Units in July)]
= [($134,400-$120,000)/(8,000-7,000)]
= $14,400/1,000 units = $14.40 per unit
Fixed cost = $134,400 - ($14.40 per unit*8,000)
= $134,400 - $115,200 = $19,200
Y = Fixed cost+Variable Cost per unit*X
Y = 19,200+14.40X (Salaries and Commissions)
Expense Classification Cost of Goods Sold Variable Cost Advertising Expense Fixed Cost Shipping Expense Mixed Cost Salaries and Commissions Mixed Cost Insurance Expense Fixed Cost Depreciation Expense Fixed CostRelated Questions
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