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