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: Morrisey & Brown, Ltd Income Statements For the Three Months Ended September 30 July August September 5,000 Sales in units 4,000 4,500 $400,000 240,000 $450,000 270,000 $500,000 300,000 Sales Cost of goods sold Gross margin Selling and administrative expenses 160,000 180,000 200,000 Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense 21,000 34,000 78,000 6,000 15,000 21,000 36,000 84,000 6,000 15,000 21,000 38,000 90,000 6,000 15,000 Total selling and administrative expenses 154,000 162,000 170,000 Net operating income $ 6,000 $ 18,000 $ 30,000 Required 1. Identify each of the company's expenses (including cost of goods sold) as either variable, fixed, or mixed Expenses Classification Cost of goods sold Advertising expense Shipping 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 Variable Cost Fixed Cost Formula per unit per unit per unit per unit

Explanation / Answer

1) Identify cost :

2) Calculate variable and fixed element :

Shipping expense variable = (38000-34000)/(5000-4000) = 4 per unit

Fixed cost = (38000-5000*4) = 18000

Salary and commission expense variable = (90000-78000)/(5000-4000) = 12 per unit

FIxed cost = 90000-(5000*12) = 30000

Cost of goods sold Variable Advertising expense Fixed Shipping expense Mixed Salaries and commission Mixed Insurance expense Fixed Depreciation expense Fixed

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