Conor Company has decided to use the contribution approach to the income statement internally for planning purposes. The company has analyzed its expenses and developed the following cost formulas:

Cost		Cost Formula
Cost of goods sold		$25 per unit sold
Advertising expense		$190,000 per quarter
Sales commissions		6% of sales
Administrative salaries		$100,000 per quarter
Shipping expense		?
Depreciation expense		$75,000 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:

				Shipping
Quarter		Units Sold		Expense
Year 1:
First		20,000		190,000
Second		22,000		205,000
Third		27,000		240,000
Fourth		23,000		220,000
Year 2:
First		21,000		200,000
Second		24,000		220,000
Third		29,000		260,000
Fourth		26,000		235,000

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 (10 points):

a.Using least squares regression, estimate a cost formula for shipping expense. (Identify intercept, slope and R²)

b.In the first quarter of Year 3, the company plans to sell 25,000 units at a selling price of $60 per unit. Prepare an income statement for the quarter using the contribution format.