Problem 6-4 Examining Cost Behaviour; High-Low Analysis; Contribution Margin Income Statement (LO1 - CC1, 3, 6; L02 - CC9; L03 - CC12) (Algo) Smith & Chief 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 four most recent quarters follow: SMITH & CHIEF LTD. Income Statements Sales in units Sales revenue Less: Cost of goods sold Gross margin Less: Operating expenses: Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense Total operating expenses Net income Expenses For the Four Quarters Ending December 31 Quarter 1 Quarter 2 4,600 4,100 A$460,000 A$410,000 276,000 246,000 184,000 164,000 Cost of goods sold Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense Sales in units (Note: Smith & Chief Ltd.'s Australian-formatted income statement has been recast into the format common in Canada. The Australian dollar is denoted by A$.) Less: Variable expenses: Required: 1. Identify each of the company's expenses (including cost of goods sold) as being variable, fixed, or mixed. Classification Less: Fixed expenses: 21,100 34,400 78,600 6,100 15,100 AS A$ AS 21,100 36,400 78,200 6,100 6,100 6,100 15,100 15,100 15,100 155,300 156,900 173,220 164,260 A$ 28,700 A$ 7,100 A$ 31,580 A$ 27,740 2-a. Using the high-low method, separate each mixed expense into variable and fixed elements. Y=AS Y= A$ Y= AS Variable Cost per unit per unit per unit AS Quarter 3 Quarter 4 5,120 4,800 A$512,000 307, 200 204,800 2-b. Using the high-low method, state the cost formula for each mixed expense. Smith & Chief, Ltd. Income Statement For the Quarter Ended September 30 21,100 40,480 90,440 AS + AS AS A$ AS AS AS A$ 3. Redo the company's income statement at the 5,120-unit level of activity using the contribution format. A$480,000 288,000 192,000 Fixed Cost 21,100 36,380 85,580 0 0 0 0 X X X
Problem 6-4 Examining Cost Behaviour; High-Low Analysis; Contribution Margin Income Statement (LO1 - CC1, 3, 6; L02 - CC9; L03 - CC12) (Algo) Smith & Chief 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 four most recent quarters follow: SMITH & CHIEF LTD. Income Statements Sales in units Sales revenue Less: Cost of goods sold Gross margin Less: Operating expenses: Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense Total operating expenses Net income Expenses For the Four Quarters Ending December 31 Quarter 1 Quarter 2 4,600 4,100 A$460,000 A$410,000 276,000 246,000 184,000 164,000 Cost of goods sold Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense Sales in units (Note: Smith & Chief Ltd.'s Australian-formatted income statement has been recast into the format common in Canada. The Australian dollar is denoted by A$.) Less: Variable expenses: Required: 1. Identify each of the company's expenses (including cost of goods sold) as being variable, fixed, or mixed. Classification Less: Fixed expenses: 21,100 34,400 78,600 6,100 15,100 AS A$ AS 21,100 36,400 78,200 6,100 6,100 6,100 15,100 15,100 15,100 155,300 156,900 173,220 164,260 A$ 28,700 A$ 7,100 A$ 31,580 A$ 27,740 2-a. Using the high-low method, separate each mixed expense into variable and fixed elements. Y=AS Y= A$ Y= AS Variable Cost per unit per unit per unit AS Quarter 3 Quarter 4 5,120 4,800 A$512,000 307, 200 204,800 2-b. Using the high-low method, state the cost formula for each mixed expense. Smith & Chief, Ltd. Income Statement For the Quarter Ended September 30 21,100 40,480 90,440 AS + AS AS A$ AS AS AS A$ 3. Redo the company's income statement at the 5,120-unit level of activity using the contribution format. A$480,000 288,000 192,000 Fixed Cost 21,100 36,380 85,580 0 0 0 0 X X X
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 6-4 Examining Cost Behaviour; High-Low Analysis; Contribution Margin Income Statement
(LO1 - CC1, 3, 6; LO2 - CC9; LO3 - CC12) (Algo)
Smith & Chief 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 four most recent quarters follow:
SMITH & CHIEF LTD.
Income Statements
Sales in units.
Sales revenue
Less: Cost of goods sold
Gross margin
Less: Operating expenses:
Advertising expense
Shipping expense
Salaries and commissions
Insurance expense
Depreciatio expense
Total operating expenses
Net income
For the Four Quarters Ending December 31
Quarter 1 Quarter 2
4,600
Expenses
Cost of goods sold
Advertising expense
Shipping expense
Salaries and commissions
Insurance expense
Depreciation expense
A$460,000
276,000
184,000
Sales in units
(Note: Smith & Chief Ltd.'s Australian-formatted income statement has been recast into the format common in Canada. The Australian
dollar is denoted by A$.)
Less: Variable expenses:
21,100
21,100
34,400
40,480
78,600
90,440
6,100
6,100
15, 100
15,100
155,300 156,900
173,220
A$ 28,700 A$ 7,100 A$ 31,580
Required:
1. Identify each of the company's expenses (including cost of goods sold) as being variable, fixed, or mixed.
Less: Fixed expenses:
Classification
A$
A$
A$
Quarter 3
4,100
5,120
A$410,000 A$512,000
246,000 307, 200
164,000
204,800
2-a. Using the high-low method, separate each mixed expense into variable and fixed elements.
21,100
36,400
Y= A$
Y= A$
Y= A$
78, 200
6,100
15, 100
2-b. Using the high-low method, state the cost formula for each mixed expense.
A$
Variable Cost
per unit
per unit
per unit
Smith & Chief, Ltd.
Income Statement
For the Quarter Ended September 30
+ A$
A$
+ A$
+++
A$
A$
A$
3. Redo the company's income statement at the 5,120-unit level of activity using the contribution format.
A$
Quarter 4
4,800
A$ 480,000
288,000
192,000
A$
21,100
36,380
85,580
6,100
15, 100
164, 260
A$ 27,740
Fixed Cost
0
0
0
0
XXX
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