Managerial Accounting for Managers: P2-16 Morrisey & Brown, Ltd of Sydney is a merchandising company

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Managerial Accounting for Managers

P2-16 Cost Behavior; High-Low Method; Contribution Format Income Statement
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.
MORRISEY & BROWN, LTD.
Income Statements
For the Three Months Ending September 30
July August September
Sales in units 4,000 4,500 5,000
Sales revenue $400,000 $450,000 $500,000
Cost of goods sold 240,000 270,000 300,000
Gross margin 160,000 180,000 200,000
Selling and administrative expenses:
Advertising expense 21,000 21,000 21,000
Shipping expense 34,000 36,000 38,000
Salaries and commissions 78,000 84,000 90,000
Insurance expense 6,000 6,000 6,000
Depreciation expense 15,000 15,000 15,000
Total selling and administrative expenses 154,000 162,000 170,000
Net operating income $ 6,000 $ 18,000 $ 30,000 $6,000 $18,000 $30,000

Required:
1. Identify each of the company’s expenses (including cost of goods sold) as either a variable, fixed, or mixed cost.
2. Using the high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense.
3. Redo the company’s income statement at the 5,000-unit level of activity using the contribution format.
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