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Cost identification and income statement prepartion.

Mankel LTD., a merchandising company, is the exclusive distributor of a product that is gaining rapid market acceptance. The company's revenues and expenses (in British pounds) for the last three months are given:

Mankel Ltd.
Comparative Income Statement
For the three months ended June 30

April May June
Sales in units 3,000 3,750 4,500

Sales in revenue 420,000 525,000 630,000
Cost of goods sold 168,000 210,000 252,000
Gross margin 252,000 315,000 378,000

Selling and Administrative expenses:
Shipping expense 44,000 50,000 56,000
Advertising expense 70,000 70,000 70,000
Salaries and commissions 107,000 125,000 143,000
Insurance expense 9,000 9,000 9,000
Depreciation expense 42,000 42,000 42,000

Total selling and administrative 272,000 296,000 320,000
Net operating income (loss) (20,000) 19,000 58,000

1. I need to identify each of the company's expenses (including cost of goods sold) as variable, fixed, or mixed.
2. Using a high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense.
3. Redo the company's income statement at the 4,500 unit level of activity using the contribution format.

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The attached solution provides the neccessary technique for ...

Solution Summary

The solution provides techniques for classifying costs into fixed, variable and mixed costs.

Furthermore, a comparative income statement is prepared and illustarted with the presented information.