Question 4 Alden Company has decided to use a contribution format income statement for internal planning purposes. The company has analyzed its expenses and has developed the following cost formulas:

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 are given below:

Management 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: Using the high-low method, estimate a cost formula for shipping expense. In the first quarter of Year 3, the company plans to sell 21,000 units at a selling price of $50 per unit. Prepare a contribution format income statement for the quarter.

Cost Cost Formula Cost of goods sold . Advertising expense Sales commissions Administrative salaries Shipping expense. Depreciation expense $20 per unit sold $170,000 per quarter 5% of sales $80,000 per quarter ? $50,000 per quarter