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:

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 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.

	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 the quarter.

Cost Cost of goods sold Advertising expense Sales commissions Administrative salaries Shipping expense Depreciation expense Cost Formula $20 per unit sold $170,000 per quarter 5% of sales $80,000 per quarter $50,000 per quarter