Morrisey & Brown, Ltd. Income Statements For the Three Months Ended September 30 July August September Soles in units 4,000 4,500 5,000 Sales ... $400,000 $450,000 $500,000 240,000 270.000 160,000 Cost of goods sold 300,000 _200,000 Gross margin .. Seling and administrative expenses: Advertising expense.. Shipping expense... Salaries and commissions. 180,000 21,000 34,000 78,000 21,000 36,000 21,000 ......... 38,000 90,000 6,000 15,000 ..... .......... 84,000 6,000 15,000 Insurance expense. Depreciation expense Total selling and administrative expenses Net operating income... 6,000 15.000 154,000 162,000 $ 18,000 170,000 $ 30,000 $ 6,000
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Cost Behavior; High-Low Method; Contribution Format Income Statement
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:
Required:
1. By analyzing the 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 5,000-unit level of activity using the contribution format.
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