Arnall Ltd.. a British merchandising company, is the exclusive distributor of 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 Arnall Ltd. Comparative Income Statements For the Three Months Ended June 30 April May June Sales in units 3.000 6,300 8.000 E 600.000 258.000 £ 1,260,000 541.80O E 1,600.000 688,000 Sales revenue Cost of goods sold Gross margin Selling and administrative expenses 342,000 718,200 912,000 59.400 60,000 193.000 6.600 34,500 108.900 60,000 381.300 6,600 34,50O 134.400 60,000 448.000 6.600 34,50O Shipping expense Salaries and commissions Total selling and administrative expenses 353.500O 571.300 683.500 Net operating income (loss) E (11.500) 2 148,900 2 228.500 (Note: Arnall Ltd.'s income statement has been recast in the functional format common in the United States. The British currency is the pound, denoted by E 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 Shipping expense Salaries and commissions

Explanation / Answer

1) identification of expenses are fixed or variable or mixed

fixed expenses = A fixed expense is an expense that will be the same total amount regardless of changes in the amount of sales, production, or some other activity

variable expenses= A variable cost is a corporate expense that varies with production output

mixed expenses =  Mixedcosts consist of a fixed component and a variable component.

amount in $

2)mixed expenses are shipping expenses ,salaries expenses

variable cost per unit in shipping expenses = change in cost/cange in units

=108900-59400/6300-3000

= 15 per unit

variable cost per unit in salaries and commissions = 361300-193000/3300

=51

fixed expenses of shipping expenses = total cost-units*variable cost

=59400-3000*15

=59400-45000

=14500

fixed expenses for salaries and commissions =193000-3000*51

= 193000-153000

=40000

3) income statement for the month ended june 8000 uunits in contribution format

  

expenses april total expenses(3000 units) april for unit expenses may total expenses(6300 units) may per unit expenses june total expenses(8000 units) june for unit expenses type of expenses cost of goods sold 258,000 86 541,800 86 688,000 86 variable expenses shipping expenses 59,400 19.8 108,900 17.29 134,400 16.8 mixed expenses advertising expenses 60,000 20 60,000 9.52 60,000 7.5 fixed expenses salaries and commissions 193,000 64.33 361,300 57.34 448,000 56 mixed expenses insurence expenses 6,600 2.2 6,600 1.05 6,600 0.825 fixed expenses depreciation 34,500 11.5 34,500 5.48 34,500 4.31 fixed expenses

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