4-12
Morris & 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$500,000
Cost of good sold 240,000 270,000 300,000
Gross margin 160,000 180,000 200,000
Selling and administrative expenses:
Advertising expense 21,000 21,000 21,000
Shipping expense 34,000 36,000 38,000
Salaries& commission 78,000 84,000 90,000
Insurance expense 6,000 6,000 6,000
Depreciate expense 15,000 15,000 15,000
Total selling& admin expens 154,000 162,000 170,000
Net operation incomeA$ 6000 A$ 18,000 A$30,000
(Note: Morrisey & Brown, Ltd. Australian- formatted income statement has been recast in the format common in the United States. The Australian dollar is denoted here by A$.)
Question:
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 elements. State the cost formula for each mixed expense.
Redo the company’s income statement at the 5,000-unit level of activity using the contribution format.
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
What is the month break-even point in units sold and in sales dollars?
Without resorting to computations, what is the total contribution margin at the break-even point?
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.
3) 6-1
Silver Company makes a product that is very popular as a Mother’s Day gift. Thus, peak sales occur in May of each…