Question 2 Kathy the Plumber did not last long on the job, and you were hired to analyse Fridges-R-Funs numbers for the golden fridges division. As part of the division budget, Jane has asked you to prepare a contribution format income statement for the coming year. The division uses a contribution format income statement (see Chapter 7) for planning purposes, and based on historical data, the cost of goods for the coming year is $450 per fridge sold and the sales commission is 5% of the revenues. The other yearly costs for the coming year are estimated as advertising expense of $70,000, selling and administrative expense of $50,000, depreciation expense of $42,000, and insurance expense is $10,000. There is also a shipping expense, but Jane is not sure how much will be the shipping expense for the coming year, and she would like a cost formula derived from the previous year for this cost.

Required a) Estimate the cost formula for the monthly and yearly shipping expenses using the high-low method. (Chapter 9, 10 marks) b) After reviewing the estimated delivery expenses using the high-low method, Jane has noted that the estimated expenses do not exactly match the actual monthly expenses in the table above. Compare the estimated monthly shipping expenses with the actual shipping expenses and explain why this is happening. (Chapter 9, 10 marks) c) In the coming year, the company plans to sell 2,000 golden fridges at a selling price of $600 per unit. Prepare a contribution format income statement for the next year for the gold fridges division. (Chapter 7, 10 marks)

Table 1-Shipping Expense Table 1-Shipping Expense