Data P2Part II-1: Morrisey & Brown is a merchandising company that is the sole d
ID: 2422684 • Letter: D
Question
Data P2Part II-1: Morrisey & Brown is a merchandising company that is the sole distributor of a product that is increasing in popularity among 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 Sept Sales in units 4,000 4,500 5,000 Sales revenue $400,000 $450,000 $500,000 Less cost of goods sold 240,000 270,000 300,000 Gross margin 160,000 180,000 200,000 Less operating 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 operating expenses 154,000 162,000 170,000 Net operating income (loss) $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. 2. Using the high-low method, separate each mixed expense into variable and fixed elements. 3. Redo the company's income statement at the 5,000 unit-level of activity using the contribution margin format. Data P2Part II-1: Morrisey & Brown is a merchandising company that is the sole distributor of a product that is increasing in popularity among 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 Sept Sales in units 4,000 4,500 5,000 Sales revenue $400,000 $450,000 $500,000 Less cost of goods sold 240,000 270,000 300,000 Gross margin 160,000 180,000 200,000 Less operating 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 operating expenses 154,000 162,000 170,000 Net operating income (loss) $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. 2. Using the high-low method, separate each mixed expense into variable and fixed elements. 3. Redo the company's income statement at the 5,000 unit-level of activity using the contribution margin format.Explanation / Answer
Morrisey & Brown July Per unit August Per unit Sept Per unit Fixed/Variable/Mixed Sales in units 4,000 4,500 5,000 Sales revenue $400,000 $100 $450,000 $100 $500,000 100.00 Less cost of goods sold 240,000 $60 270,000 $60 300,000 60.00 Variable Gross margin 160,000 180,000 200,000 Less operating expenses: Advertising expense 21,000 $5 21,000 $5 21,000 4.20 Fixed Shipping expense 34,000 $9 36,000 $8 38,000 7.60 Mixed Salaries and commissions 78,000 $20 84,000 $19 90,000 18.00 Mixed Insurance expense 6,000 $2 6,000 $1 6,000 1.20 Fixed Depreciation expense 15,000 $4 15,000 $3 15,000 3.00 Fixed Total operating expenses 154,000 $39 162,000 $36 170,000 34.00 Net operating income (loss) $6,000 $2 $18,000 $4 $30,000 6.00 Mixed expenses separation into Variable & Fixed Part Cost -Shipping Expense Details High Low Difference Units 5,000.00 4,000.00 1,000.00 Cost 38,000 34,000 4,000.00 Variable cost per unit= Differeence in cost /Difference in Unit= 4.00 per unit Fixed cost = For 5000 units variabel cost= 20,000.00 Total Cost = 38,000.00 Fixed cost part = 18,000.00 Mixed expenses separation into Variable & Fixed Part Cost -Salaries & Commissions Details High Low Difference Units 5,000.00 4,000.00 1,000.00 Cost 90,000 78,000 12,000.00 Variable cost per unit= Differeence in cost /Difference in Unit= 12.00 per unit Fixed cost = For 5000 units variabel cost= 60,000.00 Total Cost = 90,000.00 Fixed cost part = 30,000.00
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