Question

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:

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 $25 per unit sold $175,080 per quarter 7% of sales $85,000 per quarter $9,500 per quarter $55,800 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: Shipping Expense Units Sold Quarter Year 1: First Second Third Fourth Year 2: First Second Third Fourth 21.09 23, eee 28. eee 24.ee $ 165,089 $189.990 $22. epe $ 185,000 22,800 25, 35.400 32,400 $ 175.ee $ 190,000 $ 237,989 $213. 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 31.000 units at a selling price of $55 per unit. Prepare a contribution format income statement for the quarter. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Using the high-low method, estimate a cost formula for shipping expense in the form Y = a + bx. + S5

Answer 1

1) Variable cost per unit = (237000-165000)/(35400-21000) = 5

Fixed cost = 237000-(35400*5) = 60000

2) Contribution margin income statement

Sales (31000*55)		1705000
Less: Variable expense
Cost of goods sold (31000*25)	775000
Sales commission (1705000*7%)	119350
Shipping expense (31000*5)	155000
Total Variable expense		1049350
Contribution margin		655650
Less: Fixed expense
Advertising expense	175000
Shipping expense	60000
Administrative expense	85000
Insurance expense	9500
Depreciation expense	55000
Total Fixed expense		384500
Operating income		271150