Frankel Ltd., a British merchandising company, is the exclusive distributor of a

Question

Frankel Ltd., a British merchandising company, is the exclusive distributor of a product that is gaining rapid market acceptance. The companys revenues and expenses (in British pounds) for the last three months are given below:

Frankel Ltd.
Comparative Income Statements
For the Three Months Ended June 30
April May June
Sales in units 1,900 3,300 4,950

Sales revenue 328,700 570,900 856,350
Cost of goods sold 138,700 240,900 361,350

Gross margin 190,000 330,000 495,000

Selling and administrative expenses:
Shipping expense 41,800 58,600 78,400
Advertising expense 69,900 69,900 69,900
Salaries and commissions 108,600 163,200 227,550
Insurance expense 9,700 9,700 9,700
Depreciation expense 42,700 42,700 42,700

Total selling and administrative expenses 272,700 344,100 428,250

Net operating income (loss)
(82,700)
(14,100) 66,750

(Note: Frankel Ltd.s income statement has been recast in the functional format common in the United States. The British currency is the pound, denoted by .)

Required:
1.
Identify each of the companys expenses (including cost of goods sold) as either variable, fixed, or mixed.

Expenses Classification
Cost of goods sold
Shipping expense
Advertising expense
Salaries and commissions
Insurance expense
Depreciation expense

2.
Using the high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense. (Omit the "" sign in your response.)

Variable Cost Fixed Cost Formula
per unit Y = + X
per unit Y = + X

3.
Redo the companys income statement at the 4,950-unit level of activity using the contribution format. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "" sign in your response.)

Frankel Ltd.
Income Statement
For the Month Ended June 30

Variable expenses:




Contribution margin
Fixed expenses:

Explanation / Answer

Cost of goods sold --------------variable Shipping expense -----------mixed Advertising expense ----fixed, Salaries and commissions -------------mixed. Insurance expense --------------fixed, Depreciation expense------------fixed,

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