Morrisey & Brown, Limited, is the sole distributor of a product with growing sales. Its income statements for the three most recent months follow: Morrisey & Brown, Limited Income Statements For the Three Months Ended September 30 July Sales in units Sales Cost of goods sold Gross margin Selling and administrative expenses: Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense Total selling and administrative expenses Net operating income 6,750 $ 742,500 445,500 297,000 33,800 69,500 125,000 9,900 22,100 260,300 $36,700 August 7,250 $ 797,500 478,500 319,000 33,800 73,700 132, 100 9,900 22,100 271, 600 $ 47,400 September 7,750 $ 852,500 511,500 341,000 33,800 77,900 139,200 9,900 22,100 282,900 $ 58,100 Required: 1. By analyzing data from the company's income statements, classify each of its 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. Express the variable and fixed portions of each mixed expense in the form Y = a + bx. 3. Redo the company's income statement at the 7,750-unit level of activity using the contribution format.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Morrisey & Brown, Limited, is the sole distributor of a product with growing sales. Its income statements for the three most recent
months follow:
Morrisey & Brown, Limited
Income Statements
For the Three Months Ended September 30
July
Sales in units
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses:
Advertising expense
Shipping expense
Salaries and commissions
Insurance expense
Depreciation expense
Total selling and administrative expenses
Net operating income
6,750
$ 742,500
445,500
297,000
33,800
69,500
125,000
9,900
22,100
260,300
$ 36,700
August
7,250
$ 797,500
478,500
319,000
33,800
73,700
132, 100
9,900
22, 100
271, 600
$ 47,400
September
7,750
$ 852,500
511,500
341,000
33,800
77,900
139, 200
9,900
22,100
282,900
$ 58,100
Required:
1. By analyzing data from the company's income statements, classify each of its 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. Express the variable and fixed portions
of each mixed expense in the form Y = a +bX.
3. Redo the company's income statement at the 7,750-unit level of activity using the contribution format.
Transcribed Image Text:Morrisey & Brown, Limited, is the sole distributor of a product with growing sales. Its income statements for the three most recent months follow: Morrisey & Brown, Limited Income Statements For the Three Months Ended September 30 July Sales in units Sales Cost of goods sold Gross margin Selling and administrative expenses: Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense Total selling and administrative expenses Net operating income 6,750 $ 742,500 445,500 297,000 33,800 69,500 125,000 9,900 22,100 260,300 $ 36,700 August 7,250 $ 797,500 478,500 319,000 33,800 73,700 132, 100 9,900 22, 100 271, 600 $ 47,400 September 7,750 $ 852,500 511,500 341,000 33,800 77,900 139, 200 9,900 22,100 282,900 $ 58,100 Required: 1. By analyzing data from the company's income statements, classify each of its 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. Express the variable and fixed portions of each mixed expense in the form Y = a +bX. 3. Redo the company's income statement at the 7,750-unit level of activity using the contribution format.
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