Problem 1-23A High-Low Method; Contribution Format Income Statement [LO1-5, LO1-6]

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	$24 per unit sold
Advertising expense	$174,000 per quarter
Sales commissions	8% of sales
Shipping expense	?
Administrative salaries	$84,000 per quarter
Insurance expense	$9,400 per quarter
Depreciation expense	$54,000 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	20,000	$	164,000
Second	22,000	$	179,000
Third	27,000	$	221,000
Fourth	23,000	$	184,000
Year 2:
First	21,000	$	174,000
Second	24,000	$	189,000
Third	38,000	$	236,000
Fourth	35,000	$	212,000

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.