Question
PROBLEM 2-23 High-Low Method; Contribution Format Income Statement [LO 2-5, LO 2-6] Milden Company has an exclusive franchise to purchase a product from the
PROBLEM 2-23 High-Low Method; Contribution Format Income Statement [LO 2-5, LO 2-6] 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 of good sold. Advertising expense... Sales commissions. Shipping expense.. Administrative salaries. Cost Formula $35 per unit sold $210,000 per quarter 6% of sales ? $145,000 per quarter Insurance expense. $9,000 per quarter Depreciation expense $76,000 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 Year 1: Units Sold Shipping Expense First.... 10,000 $119,000 Second. 16,000 $175,000 Third 18,000 $190,000 Fourth... 15,000 $164,000 Year 2: First..... 11,000 $130,000 Second.. 17,000 $185,000 Third.. 20,000 $210,000 Fourth... 13,000 $147,000 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. 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.
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