Problem 5a-7 cost behavior; high-low method; contribution format income statement [lo5-10]

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 5,750 6,250 6,750 sales $ 632,500 $ 687,500 $ 742,500 cost of goods sold 379,500 412,500 445,500 gross margin 253,000 275,000 297,000 selling and administrative expenses: advertising expense 28,600 28,600 28,600 shipping expense 57,500 60,900 64,300 salaries and commissions 105,000 111,700 118,400 insurance expense 7,700 7,700 7,700 depreciation expense 24,600 24,600 24,600 total selling and administrative expenses 223,400 233,500 243,600 net operating income $ 29,600 $ 41,500 $ 53,400

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 6,750-unit level of activity using the contribution format.