The following is from a managerial accounting class.

Problem 2-23 High-Low Method; Contribution Format Income Statement [L02-5, L02-6] 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 Formula Cost of good sold $23 per unit sold Advertising expense $173,000 per quarter Sales commissions 6% of sales Shipping expense ? Administrative salaries $83,000 per quarter Insurance expense $9,300 per quarter Depreciation expense $53,000 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 Yeart Fhst Second Third Fouh Year 2: First Second Third Founh 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 based on the data for the last eight quarters above. Shipping Units Sold Expense 19,000 21,000 26,000 22,000 20,000 23,000 33,400 30,400 $ 163,000 $ 178,000 $220,000 $ 183,000 $ 173,000 $ 188,000 $235,000 $ 211,000 High activity level Low activity level Variable cost per unit Fixed cost element I:I:I 2. In the rst quarter of Year 3, the company plans to sell 27,000 units at a selling price of $53 per unit. Prepare a contribution format income statement for the quarter. (Do not round your intermediate calculations.)