1,800 3,400 5,100 133,200 251,600 377,400 176,400 333,200 499,800 41,700 41,700
ID: 2371072 • Letter: 1
Question
1,800
3,400
5,100
133,200
251,600
377,400
176,400
333,200
499,800
41,700
41,700
41,700
266,600
348,200
434,900
A$ (90,200
A$ (15,000
A$ 64,900
(Note: Morrisey & Brown, Ltd.'s Australian-formatted income statement has been recast in the format common in the United States. The Australian dollar is denoted here by A$.)
Redo the company's income statement at the 5,100-unit level of activity using the contribution format. (Input all amounts as positive values except net operating loss which should be indicated by a minus sign. Omit the "A$" sign in your response.)
A$
Morrisey & Brown, Ltd.Income Statements
For the Three Months Ended September 30 July August September Sales in units
1,800
3,400
5,100
Sales revenue A$ 309,600 A$ 584,800 A$ 877,200 Cost of goods sold133,200
251,600
377,400
Gross margin176,400
333,200
499,800
Selling and administrative expenses: Advertising expense 70,200 70,200 70,200 Shipping expense 43,000 63,800 85,900 Salaries and commissions 103,100 163,900 228,500 Insurance expense 8,600 8,600 8,600 Depreciation expense41,700
41,700
41,700
Total selling and administrative expenses266,600
348,200
434,900
Net operating income (loss)A$ (90,200
)A$ (15,000
)A$ 64,900
Explanation / Answer
First determine the fixed and variable components of all the costs and expenses: Variable rate = Change in costs / Change in activity level Fixed component = Total cost - Variable rate x Activity level COGS: Variable rate = (251,600 - 133,200) / (3,400 - 1,800) = 74 Fixed cost = 251,600 - 74 x 3,400 = 0 COGS - pure variable cost COGS @ 5,100 = 377,400 Advertising expense, Insurance expense and Depreciation expense are pure fixed expenses Shipping expense: Variable rate = (63,800 - 43,000) / (3,400 - 1,800) = 13 Fixed component = 63,800 - 13 x 3,400 = 19,600 Variable component @ 5,100 units = 13 x 5,100 = 66,300 Salaries and commissions: Variable rate = (163,900 - 103,100) / (3,400 - 1,800) = 38 Fixed component = 163,900 - 38 x 3,400 = 34,700 Variable component @ 5,100 units = 38 x 5,100 = 193,800 For the month ended 30 September Sales in units 5,100 Sales revenue 877,200 Variable expenses: COGS 377,400 Variable shipping expense 66,300 Variable salaries and commissions 193,800 637,500 Contribution margin 239,700 Fixed expenses: Advertising expense 70,200 Fixed shipping expense 19,600 Fixed salaries and commissions 34,700 Insurance expense 8,600 Depreciation expense 41,700 174,800 Net income 64,900
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