Frankel Ltd. Frankel Ltd., a British merchandising company, is the exclusive distributor of a single product that is gaining rapid market acceptance. The company's budgeted revenues and expenses for the three months ended June 30 are given below: Frankel Ltd. Budgeted income statements For the three months ended June 30 April May June Sales in Units 3,000 3,750 4,500 Sales 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 expenses 272,000 296,000 320,000 Net operating income (loss) £ (20,000) £19,000 £58,000 Note: Frankel Ltd.?s income statement has been recast in the format common in the U.S. but is still expressed in the UK currency, the £. Required: What is the minimum price they can charge for one extra unit of product? Identify each of the company's expenses (including cost of goods sold) as variable, fixed or mixed. What do these terms mean? Can you relate them to your business? Using the high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense. Redo the company's income statement at the 4,500-unit level of activity using the contribution format. What is the equation that will describe the company?s expenses, and net income? Why is April making a loss? What do you think income will be if 6,000 units are sold? Adapted by Helen Adams from Garrison, Ray H., Eric W. Noreen and Peter C. Brewer, Managerial Accounting, 12th Edition, (McGraw-Hill/Irwin, 2008).
