HW ch2,1

Milden Company has an exclusive franchise to purchase a product from the manufacturer and distribute it on the retail level. As an aid in planning, the company has decided to start using a contribution format income statement. To have data to prepare such a statement, the company has analyzed its expenses and has developed the following cost formulas:

Cost	Cost Formula
Cost of good sold	$26 per unit sold
Advertising expense	$183,000 per quarter
Sales commissions	7% of sales
Shipping expense	?
Administrative salaries	$93,000 per quarter
Insurance expense	$10,300 per quarter
Depreciation expense	$63,000 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 follow:

Quarter	Units Sold	Shipping Expense
Year 1:
First	29,000	$	173,000
Second	31,000	$	188,000
Third	36,000	$	230,000
Fourth	32,000	$	193,000
Year 2:
First	30,000	$	183,000
Second	33,000	$	198,000
Third	47,000	$	245,000
Fourth	44,000	$	221,000

Milden Companys president would like a cost formula derived for shipping expense so that a budgeted contribution format income statement can be prepared for the next quarter.