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Problem 5A-9 (Algo) High-Low Method; Contribution Format Income Statement [LO5-10] Milden Company is a distributor who wants to start using a contribution format income
Problem 5A-9 (Algo) High-Low Method; Contribution Format Income Statement [LO5-10] 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 of good sold Advertising expense Sales commissions Shipping expense Administrative salaries Insurance expense Depreciation expense Cost Formula $31 per unit sold $181,000 per quarter 6% of sales ? $91,000 per quarter $10,100 per quarter $61,000 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 27,000 $171,000 Second 29,000 $ 186,000 Third 34,000 $ 228,000 Fourth 30,000 $ 191,000 Year 2: First 28,000 $ 181,000 Second Third 31,000 $ 196,000 45,000 $ 243,000 42,000 $ 219,000 Fourth 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 37,000 units at a selling price of $61 per unit. Prepare a contribution format income statement for the quarter.
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