Alden Company has decided to use a contribution approach income statement for internal planning purposes. The company has analyzed its expenses and has developed the following cost formulas:
Cost Cost Formula
Cost of goods sold . . . . . . . . . . . $20 per unit sold
Advertising expense . . . . . . . . . $170,000 per quarter
Sales commissions . . . . . . . . . . 5% of sales
Administrative salaries . . . . . . . $80,000 per quarter
Shipping expense . . . . . . . . . . . ?
Depreciation expense . . . . . . . . $50,000 per quarter
Management has concluded that shipping expense is a mixed cost, containing both variable and fixed cost elements. Units sold and the related shipping expense over the last eight quarters are given below:

Management would like a cost formula derived for shipping expense so that a budgeted income statement using the contribution approach can be prepared for the next quarter.

Required:
1. Using the least-squares regression method, estimate a cost formula for shipping expense. (Since the Units Sold above are in thousands of units, the variable cost you compute will also be in thousands of units. It can be left in this form, or you can convert your variable cost to a per unit basis by dividing it by 1,000.)
2. In the first quarter of Year 3, the company plans to sell 21,000 units at a selling price of $50 per unit. Prepare a contribution format income statement for thequarter.

Transcribed Image Text:

Units Sold Shipping (000) Expense 0 Quarter Year 1: First.. 16 $160,000 18 $175,000 23 $210,000 19 $180,000 Third. .. Fourth Year 2: First A Second.... Third Fourth.... 17 $170,000 $190,000 25 $230,000 22 $205,000 2