Question
In: Accounting
Morrisey & Brown, Ltd., of Sydney, Australia, is a merchandising firm that is the sole distributor...
Morrisey & Brown, Ltd., of Sydney, Australia, is a
merchandising firm that is the sole distributor of a product that
is increasing in popularity among Australian consumers. The
company’s income statements for the three most recent months
follow:
| MORRISEY & BROWN, LTD. Income Statements |
||||||||||||
| For the Four Quarters Ending December 31 | ||||||||||||
| Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | |||||||||
| Sales in units | 5,000 | 4,500 | 5,600 | 5,100 | ||||||||
| Sales revenue | A$ | 500,000 | A$ | 450,000 | A$ | 560,000 | A$ | 510,000 | ||||
| Less: Cost of goods sold | 300,000 | 270,000 | 336,000 | 306,000 | ||||||||
| Gross margin | 200,000 | 180,000 | 224,000 | 204,000 | ||||||||
| Less: Operating expenses: | ||||||||||||
| Advertising expense | 21,500 | 21,500 | 21,500 | 21,500 | ||||||||
| Shipping expense | 36,000 | 38,000 | 42,400 | 37,900 | ||||||||
| Salaries and commissions | 81,000 | 79,000 | 92,200 | 87,900 | ||||||||
| Insurance expense | 6,500 | 6,500 | 6,500 | 6,500 | ||||||||
| Depreciation expense | 15,500 | 15,500 | 15,500 | 15,500 | ||||||||
| Total operating expenses | 160,500 | 160,500 | 178,100 | 169,300 | ||||||||
| Net income | A$ | 39,500 | A$ | 19,500 | A$ | 45,900 | A$ | 34,700 | ||||
(Note: Morrisey & Brown, Ltd.’s Australian-formatted income statement has been recast into the format common in Canada. The Australian dollar is denoted by A$.)
Required:
1. Identify each of the company’s expenses (including cost of goods sold) as being variable, fixed, or mixed.
2-a. Using the high-low method, separate each mixed expense into variable and fixed elements.
2-b. Using the high-low method, state the cost formula for each mixed expense.
3. Redo the company's income statement at the 5,600-unit level of activity using the contribution format.
4. Assume that the company’s sales are projected to be 4,750 units in the next quarter. Prepare a contribution margin income statement.
Solutions
Expert Solution
| Part-a: Classification of Expense | |
| Cost Of Goods Sold | Variable |
| Advertisement Expenses | Fixed |
| Shipping Expenses | Mixed |
| Salaries And Commission | Mixed |
| Insurance Expenses | Fixed |
| Depreciation Expenses | Fixed |
| Working Note: Morrisey & Bromn - to comppute Vriable ost per Unit and Fixed Cost and identify nature of cost | |||||||||
| Q-1 | Q-2 | Q-3 | Q-4 | Nature of cost | |||||
| Total | Per Unit | Total | Per Unit | Total | Per Unit | Total | Per Unit | ||
| Sales Units | 5,000 | 4,500 | 5,600 | 5,100 | |||||
| Sales | 500,000 | 100 | 450,000 | 100 | 560,000 | 100 | 510,000 | 100 | Variable |
| Less: Cost Of Goods Sold | 300,000 | 60 | 270,000 | 60 | 336,000 | 60 | 306,000 | 60 | variable |
| Gross Margin | 200,000 | 180,000 | 224,000 | 204,000 | |||||
| Less: Selling And Administrative Expenses | |||||||||
| Advertisment | 21,500 | 21,500 | 21,500 | 21,500 | Fixed | ||||
| Shipping Expenses | 36,000 | 7.2 | 38,000 | 8.44 | 42,400 | 7.571429 | 37,900 | 7.43 | Mixed |
| Salaries And Commissions | 81,000 | 16.2 | 79,000 | 17.56 | 92,200 | 16.46429 | 87,900 | 17.24 | Mixed |
| Insurance Expenses | 6,500 | 6,500 | 6,500 | 6,500 | Fixed | ||||
| Depreciation Expenses | 15,500 | 15,500 | 15,500 | 15,500 | Fixed | ||||
| Total | 160,500 | 160,500 | 178,100 | 169,300 | |||||
| Net Operating Income | 39,500 | 19,500 | 45,900 | 34,700 |
| Part-b | ||||||||
| Variable cost | FiXed Cost | formula | ||||||
| Shipping Expenses | 4.00 | Per Unit | 20,000.00 | Y= | 20,000.00 | + | 4.00 | Per Unit |
| Salaries And Commission | 12.00 | Per Unit | 25,000.00 | Y= | 25,000.00 | + | 12.00 | Per Unit |
| Working Note : Use High Low Method |
| Variable cost per Unit = ( Cost at Higher Activity Level- Cost at Lower activity Level)/ ( Higher Activity Level- Lower Activity Level) |
| Shipping Expense |
| Variable cost per Unit =(42400-38000)/(5600-4500)= $4 per Unit |
| Fixed Cost = Total Cost for 5600 Unit - Variable cost for 56000 Unit |
| =42400-(5600*4)=$20000 |
| Salaries & Comm Expense |
| Variable cost per Unit =(92200-79000)/(5600-4500)= $12 per Unit |
| Fixed Cost = Total Cost for 5600 Unit - Variable cost for 5600 Unit |
| =92200-(5600*12)=$25000 |
| Part-3 Income Statement at 5600 Activity Level | ||
| Sales | 560,000.00 | |
| Less: Variable Expense | ||
| Cost Of Goods Sold | 336,000.00 | |
| Shipping Cost | 22,400.00 | |
| Salarieis & Commission Expense | 67,200.00 | 425,600.00 |
| Contribution | 134,400.00 | |
| Less: Fixed Cost | ||
| Advertisment | 21,500.00 | |
| Shipping Expenses | 20,000.00 | |
| Salaries And Commissions | 25,000.00 | |
| Insurance Expenses | 6,500.00 | |
| Depreciation Expenses | 15,500.00 | 88,500.00 |
| Net Operating Income | 45,900.00 | |
| Part-4 Income Statement at 4750 Activity Level | ||
| Sales | 475,000.00 | |
| Less: Variable Expense | ||
| Cost Of Goods Sold | 285,000.00 | |
| Shipping Cost | 19,000.00 | |
| Salarieis & Commission Expense | 57,000.00 | 361,000.00 |
| Contribution | 114,000.00 | |
| Less: Fixed Cost | ||
| Advertisment | 21,500.00 | |
| Shipping Expenses | 20,000.00 | |
| Salaries And Commissions | 25,000.00 | |
| Insurance Expenses | 6,500.00 | |
| Depreciation Expenses | 15,500.00 | 88,500.00 |
 ekkarill92 answered 2 years agoRelated SolutionsMorrisey & Brown, Ltd., of Sydney, Australia, is a merchandising firm that is the sole distributor...Morrisey & Brown, Ltd., of Sydney, Australia, is a
merchandising firm that is the sole distributor of a product that
is increasing in popularity among Australian consumers. The
company’s income statements for the three most recent months
follow:
MORRISEY & BROWN, LTD.
Income Statements
For the Four Quarters Ending December 31
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Sales in units
5,100
4,600
5,720
5,200
Sales revenue
A$
510,000
A$
460,000
A$
572,000
A$
520,000
Less: Cost of goods...
Morrisey & Brown, Ltd., of Sydney, Australia, is a merchandising firm that is the sole distributor...Morrisey & Brown, Ltd., of Sydney, Australia, is a
merchandising firm that is the sole distributor of a product that
is increasing in popularity among Australian consumers. The
company’s income statements for the three most recent months
follow:
MORRISEY & BROWN, LTD.
Income Statements
For the Four Quarters Ending December 31
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Sales in units
5,700
5,200
6,440
5,800
Sales revenue
A$
570,000
A$
520,000
A$
644,000
A$
580,000
Less: Cost of goods...
Morrisey & Brown, Ltd., of Sydney, Australia, is a merchandising firm that is the sole distributor...Morrisey & Brown, Ltd., of Sydney, Australia, is a
merchandising firm that is the sole distributor of a product that
is increasing in popularity among Australian consumers. The
company’s income statements for the three most recent months
follow:
MORRISEY & BROWN, LTD.
Income Statements
For the Four Quarters Ending December 31
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Sales in units
5,100
4,600
5,720
5,200
Sales revenue
A$
510,000
A$
460,000
A$
572,000
A$
520,000
Less: Cost of goods...
Morrisey & Brown, Ltd., of Sydney, Australia, is a merchandising firm that is the sole distributor...Morrisey & Brown, Ltd., of Sydney, Australia, is a
merchandising firm that is the sole distributor of a product that
is increasing in popularity among Australian consumers. The
company’s income statements for the three most recent months
follow:
MORRISEY & BROWN, LTD.
Income Statements
For the Four Quarters Ending December 31
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Sales in units
5,700
5,200
6,440
5,800
Sales revenue
A$
570,000
A$
520,000
A$
644,000
A$
580,000
Less: Cost of goods...
Morrisey & Brown, Ltd., of Sydney, Australia, is a merchandising firm that is the sole distributor...Morrisey & Brown, Ltd., of Sydney, Australia, is a
merchandising firm that is the sole distributor of a product that
is increasing in popularity among Australian consumers. The
company’s income statements for the three most recent months
follow:
MORRISEY & BROWN, LTD.
Income Statements
For the Four Quarters Ending December 31
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Sales in units
4,800
4,300
5,360
4,900
Sales revenue
A$
480,000
A$
430,000
A$
536,000
A$
490,000
Less: Cost of goods...
Morrisey & Brown, Ltd., of Sydney, Australia, is a merchandising firm that is the sole distributor...Morrisey & Brown, Ltd., of Sydney, Australia, is a
merchandising firm that is the sole distributor of a product that
is increasing in popularity among Australian consumers. The
company’s income statements for the three most recent months
follow: MORRISEY & BROWN, LTD. Income Statements For the Four
Quarters Ending December 31 Quarter 1 Quarter 2 Quarter 3 Quarter 4
Sales in units 5,000 4,500 5,600 5,100 Sales revenue A$ 500,000 A$
450,000 A$ 560,000 A$ 510,000 Less: Cost of goods...
Morrisey & Brown, Ltd., of Sydney, Australia, is a merchandising firm that is the sole distributor...Morrisey & Brown, Ltd., of Sydney, Australia, is a
merchandising firm that is the sole distributor of a product that
is increasing in popularity among Australian consumers. The
company’s income statements for the three most recent months
follow:
MORRISEY & BROWN, LTD.
Income Statements
For the Four Quarters Ending December 31
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Sales in units
5,200
4,700
5,840
5,300
Sales revenue
A$
520,000
A$
470,000
A$
584,000
A$
530,000
Less: Cost of goods...
Morrisey & Brown, Ltd., of Sydney is a merchandising company that is the sole distributor of...Morrisey & Brown, Ltd., of Sydney is a merchandising company
that is the sole distributor of a product that is increasing in
popularity among Australian 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
September
Sales in units
9,000
9,500
10,000
Sales
$
945,000
$
997,500
$
1,050,000
Cost of goods sold
567,000
598,500
630,000
Gross margin
378,000
399,000
420,000
Selling and...
Morrisey & Brown, Ltd., of Sydney is a merchandising company that is the sole distributor of...Morrisey & Brown, Ltd., of Sydney is a merchandising company
that is the sole distributor of a product that is increasing in
popularity among Australian 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
September
Sales in units
4,000
4,500
5,000
Sales
$
400,000
$
450,000
$
500,000
Cost of goods sold
240,000
270,000
300,000
Gross margin
160,000
180,000
200,000
Selling and...
Morrisey & Brown, Ltd., of Sydney is a merchandising company that is the sole distributor of...Morrisey & Brown, Ltd., of Sydney is a merchandising company
that is the sole distributor of a product that is increasing in
popularity among Australian 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
September
Sales in units
6,750
7,250
7,750
Sales
$
742,500
$
797,500
$
852,500
Cost of goods sold
445,500
478,500
511,500
Gross margin
297,000
319,000
341,000
Selling and...
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