Arnall Ltd., a British merchandising company, is the exclusive distributor of a
ID: 2609287 • Letter: A
Question
Arnall Ltd., a British merchandising company, is the exclusive distributor of a product that is gaining rapid market acceptance. The company’s revenues and expenses (in British pounds) for the last three months are given below:
134,900
Identify each of the company’s expenses (including cost of goods sold) as either variable, fixed, or mixed.
Using the high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense. (Enter mixed expenses in the order of company expenses provided under question.)
Redo the company’s income statement at the 5,900-unit level of activity using the contribution format.
Using the high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense. (Enter mixed expenses in the order of company expenses provided under question.)
Arnall Ltd., a British merchandising company, is the exclusive distributor of a product that is gaining rapid market acceptance. The company’s revenues and expenses (in British pounds) for the last three months are given below:
RequredExplanation / Answer
2 Shipping expenses: Variable part=( expenses at high level- expense at low level)/(High level-Low level)=(74100-34100)/(5900-1900)=£ 10 per unit Fixed part=34100-(1900*10)=15100 Formula, Y=15100+10X Y=Total expenses X=Units sold Salaries and commissions: Variable part=( expenses at high level- expense at low level)/(High level-Low level)=(277800-109800)/(5900-1900)=£ 42 per unit Fixed part=109800-(1900*42)=30000 Formula, Y=30000+42X Y=Total expenses X=Units sold 3 Income statement: Sales revenue 1003000 Less: Variable expenses Cost of goods sold 418900 Shipping expenses (10*5900) 59000 Salaries and commissions (42*5900) 247800 725700 Contribution margin 277300 Less: Fixed expenses Shipping expenses 15100 Advertising expenses 58000 Salaries and commissions 30000 Insurance expense 7200 Depreciation expense 48000 158300 Net operating income 119000
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