Morrisey & Brown, Ltd., of Sydney is a merchandising company that is the sole di

Question

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:

Required:

1. 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.

2. Using the high-low method, separate each mixed expense into variable and fixed elements. Express the variable and fixed portions of each mixed expense in the form Y = a + bX.

Morrisey & Brown, Ltd.
Income Statements
For the Three Months Ended September 30 July August September Sales in units 7,500 8,000 8,500 Sales $ 712,500 $ 760,000 $ 807,500 Cost of goods sold 427,500 456,000 484,500 Gross margin 285,000 304,000 323,000 Selling and administrative expenses: Advertising expense 39,600 39,600 39,600 Shipping expense 81,000 85,800 90,600 Salaries and commissions 135,000 142,400 149,800 Insurance expense 6,100 6,100 6,100 Depreciation expense 19,300 19,300 19,300 Total selling and administrative expenses 281,000 293,200 305,400 Net operating income $ 4,000 $ 10,800 $ 17,600

Explanation / Answer

July Aug Sep Sales in units 7,500 8,000 8,500 Sales 7,12,500 7,60,000 8,07,500 Cost of goods sold 4,27,500 4,56,000 4,84,500 Gross margin 2,85,000 3,04,000 3,23,000 Selling and administrative expenses: Advertising expense 39,600 39,600 39,600 Shipping expense 81,000 85,800 90,600 Salaries and commissions 1,35,000 1,42,400 1,49,800 Insurance expense 6,100 6,100 6,100 Depreciation expense 19,300 19,300 19,300 Total selling and administrative expenses 2,81,000 2,93,200 3,05,400 Net operating income 4,000 10,800 17,600 Analysis on Each Expense: Cost of goods sold 427500 456000 484500 Sales in units 7500 8000 8500 PU Cost 57.00 57.00 57.00 Result Variable Cost Advertising expense Fixed Cost (Same at each level) Shipping expense 81000 85800 90600 Sales in units 7500 8000 8500 (Shipping Cost at 8000- at 7500)/ 4800 (Sales Units 8000- 7500) 500 Per Unit Variable Cost 9.60 At Sales Level(7500) 72000 (9.60*7500) Variable Cost Total Cost 81000 Fixed Cost 9000 Fixed Cost Variable Cost PU 9.60 Fixed Cost 9000 Salaries and commissions 135000 142400 149800 Sales in units 7500 8000 8500 (S&C Cost at 8000- at 7500)/ 7400 (Sales Units 8000- 7500) 500 Per Unit Variable Cost 14.80 At Sales Level(7500) 111000 (14.80*7500) Variable Cost Total Cost 135000 Fixed Cost 24000 Fixed Cost Variable Cost PU 14.80 Fixed Cost 24000 Insurance expense Fixed Cost (Same at each level) Depreciation expense Fixed Cost (Same at each level) Answer to First Part 1 Cost Element Type Cost of goods sold Variable Cost Advertising expense Fixed Cost Shipping expense Mixed (Semi Variable Cost) Salaries and commissions Mixed (Semi Variable Cost) Insurance expense Fixed Cost Depreciation expense Fixed Cost 2 Use of High Low Method Low Level High Level Sales Level 7,500 8,500 Total Cost at Each Level 7,08,500 7,89,900 Change in Cost 81,400 Change in Sale Level 1,000 Variable Cost PU 81.40 Total Variable Cost(7500*81.40) 6,10,500 Total Cost 7,08,500 Fixed Cost 98,000 Y=98000+81.40X

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.