Question
Alden Company has decided to use a contribution format income statement for internal planning purposes. The company has analyzed its expenses and has developed the
Alden Company has decided to use a contribution format 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 | $25 per unit sold | |
Advertising expense | $175,000 per quarter | |
Sales commissions | 7% of sales | |
Administrative salaries | $85,000 per quarter | |
Shipping expense | ? | |
Depreciation expense | $55,000 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: |
Quarter | Units Sold | Shipping Expense |
Year 1: | ||
First | 21,000 | $165,000 |
Second | 23,000 | $180,000 |
Third | 28,000 | $222,000 |
Fourth | 24,000 | $185,000 |
Year 2: | ||
First | 22,000 | $175,000 |
Second | 25,000 | $190,000 |
Third | 35,400 | $237,000 |
Fourth | 32,400 | $213,000 |
Management would like a cost formula derived for shipping expense so that a budgeted contribution format income statement can be prepared for the next quarter. |
Required: | |
1. | Using the high-low method, estimate a cost formula for shipping expense based on the data for the last eight quarters above. |
Y = $ + $ X |
2. | In the first quarter of Year 3, the company plans to sell 31,000 units at a selling price of $55 per unit. Prepare a contribution format income statement for the quarter. (Input all amounts as positive values except losses which should be indicated by a minus sign.) |
Alden Company Budgeted Contribution Format Income Statement For the First Quarter of Year 3 | ||
Sales | $ | |
Variable expenses: | ||
(Click to select)Cost of goods sold | $ | |
(Click to select)Depreciation expenseShipping expenseSales commissionsAdvertising expenseCost of goods soldAdministrative salaries | ||
(Click to select)Shipping expenseDepreciation expenseAdvertising expenseCost of goods soldAdministrative salariesSales commissions | ||
Total variable expenses | ||
Contribution margin | ||
Fixed expenses: | ||
Shipping expense | ||
Sales commissions | ||
Depreciation expense | ||
Advertising expense | ||
Total fixed expenses | ||
Net operating income | $ | |
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