Part 1 Childress 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 $35 per unit sold Advertising expense $210,000 per quarter Sales commissions 6% of sales Shipping expense ? Administrative salaries $145,000 per quarter Insurance expense .. $9,000 per quarter Depreciation expense $76,000 per quarter Management has provided you data for units sold and the related shipping expense over the last eight quarters as follows: Quarter Units Sold Shipping Expense Year 1: First Second Third Fourth Year 2: First Second Third Fourth 10,000 16,000 18.000 15,000 $119,000 $175.000 $190,000 $164,000 11,000 17,000 20,000 13,000 $130,000 $185.000 $210,000 $147.000 Childress 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. Select an approach and estimate a cost formula for shipping expense. Be sure to explain the approach you selected 2. In the first quarter of Year 3, the company plans to sell 12,000 units at a selling price of $100 per unit. Prepare a contribution format income statement for the quarter. Part 11 Randolph Dana owns a catering company that prepares banquets and parties for business functions throughout the year. Dana's business is seasonal, with a heavy schedule during the summer months and the year-end holidays. During peak periods there are extra costs; however, even during nonpeak periods Dana must work more to cover his expenses. One of the major events Dana's customers request is a cocktail party. He offers a standard cocktail party and has developed the following cost structure on a per-person basis. Food and beverages $14.00 Labor (6. @ $11 per hour 6.60 Overhead (6r. $14 per houn 8.40 Total cost per person $29.00 When bidding on cocktail parties, Dana adds a 15 percent markup to this cost structure as a profit margin. Dana is quite certain about his estimates of the food and beverage and labor costs but is not as comfortable with the overhead estimate. This estimate was based on the actual data for the past 12 months presented in the following table. These data indicate that overhead expenses appear to vary with the direct-labor hours expended. The $14 per hour overhead estimate was determined by dividing total overhead expended for the 12 months by total labor hours and rounding to the nearest dollar. Label 2.800 January 350.000 March April May 3.000 4,500 4.200 6.500 5,500 7,000 7.500 4,500 3,100 6.500 80.000 67 000 54000 74.000 71.000 75.000 77 000 68.000 July Aque September Octob November December 73.000 Required: 1. Use the High-Low method to estimate the fixed and variable cost components of overhead. Express this estimate in the form Y= a + bx 2. Use the linear regression approach to estimate the fixed and variable cost components of overhead. Express this estimate in the form Y= a + bx 3. Which of the three approaches (that is, the $14 per hour, hi-low, or regression) to estimating overhead cost would you recommend to Dana and why? 4. Dana has been asked to prepare a bid for a 250-person cocktail party to be given next month. Determine the minimum bid price that Dana should be willing to submit. 5. What other factors do you think Dana should consider in developing the bid price for the cocktail party