Question
Milden Company is a distributor who wants to start using a contribution format income statement for planning purposes. The company has analyzed its expenses and
Milden Company is a distributor who wants to start using a contribution format income statement for planning purposes. The company has analyzed its expenses and developed the following cost formulas: Cost Cost Formula Cost of good sold $33 per unit sold Advertising expense $189,000 per quarter Sales commissions 8% of sales Shipping expense ? Administrative salaries $99,000 per quarter Insurance expense $10,900 per quarter Depreciation expense $69,000 per quarter Because shipping expense is a mixed cost, the company needs to estimate the variable shipping expense per unit sold and the fixed shipping expense per quarter using the following data: Quarter Units Sold Shipping Expense Year 1: First 35,000 $ 179,000 Second 37,000 $ 194,000 Third 42,000 $ 236,000 Fourth 38,000 $ 199,000 Year 2: First 36,000 $ 189,000 Second 39,000 $ 204,000 Third 53,000 $ 251,000 Fourth 50,000 $ 227,000 Required: 1. Using the high-low method, estimate a cost formula for shipping expense in the form Y = a + bX. 2. In the first quarter of Year 3, the company plans to sell 41,000 units at a selling price of $66 per unit. Prepare a contribution format income statement for the quarter.
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