any, is the exclusive distributor of a product that is gaining rapid Arnall Ltd.

Question

any, is the exclusive distributor of a product that is gaining rapid Arnall Ltd., a British merchandising i market acceptance. The company's revenues and expenses (in British pounds) for the last three months are given below: Arnall Ltd Comparative Income Statements For the Three Months Ended June 30 April May June Sales in units 2,000 5,500 6,100 Sales revenue Cost of goods sold £300,000 142,000 £ 825,000 390,500 £915,000 433,100 Gross margin 158,000 434,500 481,900 Selling and administrative expenses: Shipping expense Advertising expense Salaries and commissions Insurance expense Depreciation 51,800 46,000 94,000 6,200 41,900 118,300 46,000 220,000 6,200 41,900 129,700 46,000 241,600 6,200 41,900 Total selling and administrative expenses 239,900 432,400 465,400 Net operating income (loss) £ (81,900) £ 2,100 E 16,500 (Note: Arnall 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 company's expenses (including cost of goods sold) as either variable, fixed, or mixed

Explanation / Answer

2) As per High-low method: Variable Cost per Unit =(y2 y1)/(x2 x1) a) Shipping expense Where, y2 is the total cost at highest level of activity = 118300 y1 is the total cost at lowest level of activity = 51800 x2 are the number of units/labor hours etc. at highest level of activity = 5500 x1 are the number of units/labor hours etc. at lowest level of activity = 2000 Variable Cost per Unit = (118300-51800) / (5500-2000) = 19 Fixed cost = 118300-(5500*19) = 13800 b) Salaries and Commissions Where, y2 is the total cost at highest level of activity = 220000 y1 is the total cost at lowest level of activity = 94000 x2 are the number of units/labor hours etc. at highest level of activity = 5500 x1 are the number of units/labor hours etc. at lowest level of activity = 2000 Variable Cost per Unit = (220000-94000) / (5500-2000) = 36 Fixed cost = 220000-(5500*36) = 22000 3) Arnall ltd. Income Statement For the month ended June 30 Amount Amount Sales revenue (6100*150) 915000 Variable expenses: Cost of goods sold (6100*71) 433100 Shipping expenses (6100*19) 115900 Salaries and Commissions (6100*36) 219600 Total variable expenses 768600 Contribution margin 146400 Fixed expenses: Advertising expenses 46000 Insurance expenses 6200 Depreciation expenses 41900 Shipping expenses 13800 Salaries and Commissions 22000 Total fixed expenses 129900 Net income 16500 Note: Selling price per unit = 300000/2000 = 150 Cost of goods sold = 142000/2000 = 71

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