Question

G 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:

Answer 1

Required:

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.

Answer:

Variable expenses: they increase when the total amount of units sold increases, and decreases when the total amount of units sold decrease.

• Cost of goods sold (COGS)
• Shipping expenses
• Commissions: usually salespeople earn a fixed amount (fixed salary) and a variable amount based on sales commissions.

Fixed expenses: they do not depend on the total amount of units sold

• Advertising expense
• Insurance expense
• Depreciation expense
• Salaries: the fixed amount that salespeople earn (doesn't include sales commissions)

Explanation:

                                                   month 1          month 2           month 3

Cost of goods sold                   375,000          412,500          450,000  

Advertising expense                  22,800           22,800             22,800

Shipping expense                      46,000            48,800             51,600

Salaries and commissions         92,000            98,400           104,800

Insurance expense                       6,050              6,050               6,050

Depreciation expense                24,700            24,700             24,700