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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,
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: $28 per unit sold $185,000 per quarter 6% of sales Cost of good sold Advertising expense Sales commissions Shipping expense Administrative salaries Insurance expense Depreciation expense $95,000 per quarter $10,500 per quarter $65,000 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 Shipping Units SoldExpense Quarter Year 1 First Second Third Fourth 31,000 $175,000 33,000 $190,000 38,000 $232,000 34,000 $195,000 Year 2 First Second Third Fourth 32,000 $185,000 35,000 $200,000 49,000 $247,000 46,000 $223,000 Milden Company's 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 Required: 1. Using the high-low method, estimate a cost formula for shipping expense based on the data for the last eight quarters above. Units Sold Expense High activity level Low activity leve Change 0 $ Variable cost per unit per unit Fixed cost element 2. In the first quarter of Year 3, the company plans to sell 39,000 units at a selling price of $55 per unit. Prepare a contribution format income statement for the quarter. (Do not round your intermediate calculations.) Milden Company Budgeted Contribution Format Income Statement For the First Quarter, Year 3 Variable expenses Total variable expenses Fixed expenses Total fixed expenses
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