Arnall Ltd., a British trading company, is the exclusive distributor of a product that is gaining rapid market acceptance. The company's income and expenses (in sterling) for the last three months are detailed below:

Arnal Ltd. Comparative Income Statement For the three months ended June 30
		April				Can			June
sales in units		2,600				4,000			7,300
sales revenue		£520,000				£800,000			£ 1,460,000
cost of goods sold		213,200				328,000			598,600
Gross margin		306,800				472,000			861.400
Selling and administration expenses:
Shipping costs		39,900				55,300			91,600
advertising expenses		57,000				57,000			57,000
salaries and commissions		143,600				208,000			359,800
insurance costs		7,500				7,500			7,500
depreciation expense		47,800				47,800			47,800
Total selling and administrative expenses		295,800				375,600			563,700
Net operating income (loss)		£11,000				£96,400			£ 297,700

(Note: Arnall Ltd.'s income statement has been restated in the US common functional format. The British currency is the pound, denoted by £.)

Required

1. Identify each of the company's expenses (including cost of goods sold) as variable, fixed, or mixed.

2. Using the high-low method, separate each mixed expense into fixed and variable items. Indicate the cost formula for each mixed expense.

3. Redo the company's income statement at the 7,300-unit activity level using the contribution format.

Answer rating: 100% (QA)

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