Question: Identify each of the company’s expenses (including cost of good sold) as either variable, fixed, or mixed. Using the high- low method, separate each mixed expense into variable and fixed...

1. 4-12
Mo
is & Brown, Ltd
Income Statements
For the Three Months Ended September 30

July August September
Sales in units 4000 4500 5000

Sales revenue A$400,000 A$450,000 A$500,000
Cost of goodss 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& commission 78,000 84,000 90,000
Insurance expense 6,000 6,000 6,000
Depreciate expense 15,000 15,000 15,000

Total selling& admin expens 154,000 162,000 170,000
Net operation income A$ 6000 A$ 18,000 A$30,000

(Note: Mo
isey & Brown, Ltd. Australian- formatted income statement has been recast in the format
common in the United States. The Australian dollar is denoted here by A$.)
Question:
(1) Identify each of the company’s expenses (including cost of good sold) as either variable, fixed, or
mixed.

Cost of goods sold Variable
Advertising expense Fixed
Shipping expense Mixed
Salaries& commission Variable
Insurance expense Fixed
Depreciate expense Fixed

(2) Using the high- low method, separate each mixed expense into variable and fixed elements. State
the cost formula for each mixed expense.
July August September
Sales in units 4000 4500 5000
Shipping Expense 34,000 36,000 38,000

High 5,000 units $38,000
Low 4,000 units $34,000
Difference 1,000 units $ 4,000
======
Variable cost per unit $4.00 ($4,000 ÷1,000)
Shipping cost for July 4,000 units $34,000
Less: Variable cost at $4.00 per unit $16,000
Fixed Cost $18,000
======

(3) Redo the company’s income statement at the 5,000-unit level of activity using the contribution
format.

Income Statements
For the Month September 30
(Contribution Format)

Sales in units 5000

Sales revenue A$500,000
Less; Variable Costs
Cost of goods sold 300,000
Shipping expense 20,000
Salaries& commission 90,000
Total Variable Costs 410,000
Contribution Margin 90,000

Fixed Costs
Advertising expense 21,000
Shipping expense 18,000
Insurance expense 6,000
Depreciate expense 15,000
Total Fixed Costs 60,000
Net operation income A$30,000
=======
2) 5-12

Menlo Company distributes a single product. The company’s sales and expenses for last month
follow:

Total Per Unit
Sales $450,000 $30
Variable expenses 180,000 12
Contribution margin 270,000 18
Fixed expenses 216,000
Net Operating income 54,000

1) What is the month
eak-even point in units sold and in sales dollars?

Breakeven points in units = Fixed Costs ÷ Contribution Margin per unit
= 216,000 ÷ 18
= 12,000 units


2) Without resorting to computations, what is the total contribution margin at the
eak-even
point?

At Breakeven point the contribution margin is equal to fixed costs. Hence the total
contribution margin at
eakeven should be $216,000.


3) How many units would have to be sold each month to earn a target profit of $90,000? Use the
formula method. Verify your answer by preparing contribution format income statement at the
target sales level.

Units to be sold to earn desired profit
= (Fixed Cost + Desired profit) ÷ Contribution Margin per unit
= (216,000 + 90,000) ÷ 18
= 17,000 units
Income Statement (17,000 Units)
Sales $510,000
Less: Variable cost $204,000
Contribution Margin $306,000
Less: Fixed Costs $216,000
Profit $ 90,000
=======
3) 6-1

Silver Company makes a product that is very popular as a...