Question: I need help with this question and can explained how you get the fixed cost element from the high - low activity level : Mi...

I need help with this question an instructions: 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 contirbution formant income statement. To have data to prepare such a staement, the company has analyzed its expenses and has developed the following cost formulas:

cost Cost Formula

cost of good sold $20 per unit sold

advertising expense $170,000 per quarter

sales commissions 5% of sales

shipping expense ?

administrative salaries $80,000 per quarter

insurance expense $9,000 per quarter

Depreciation expense $50,000 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:

shipping

Quarter Unit Sold expense

Year 1:

first 16,000 $160,000

Second 18,000 $175,000

third 23,000 $217,000

fourth 19,000 $180,00

Year 2:

First 17,000 $170,000

Second 20,000 $185,000

Third 25,000 $232,000

Fourth 22,000 $208,000

Milden Company's president would like a cost formula derived for shipping expense so that a budgeted contribution format income ststement can be prepared for the next quarter.

Required:

1. Using the high -low method, estimate a cost formula for shipping expense based on the data for the last eight quarters above.

unit sold shipping expense

high activity level 25,000 $ 232,000

low activity level 16,000 $ 160,000

Change 9,000 $ 72,000

Variable cost per unit $ 8 per unit

Fixed cost element

Y= + $ 8 X

2. 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 formant income statement for the quarter. (Do not round your intermediate calculations.)