Question

value: 10.00 points 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 Formula $28 per unit sold $185,000 per quarter 6% of sales Cost Cost of good sold Advertising expense Sales commissions Shipping expense Administrative salaries Insurance expense Depreciation expense $95,000 per quarter $10,500 per quarter $65,000 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 Expense Units Sold Quarter Year 1: First Second Third Fourth Year 2 First Second Third Fourth 31,000 33.000 38.000 34.000 $175,000 $190,000 $232.000 $195,000 32,000 35.000 49,000 46.000 $185.000 $200.000 $247.000 $223,000 Miiden company's president would like a cost formula derived for shipping expense so that a budgeted contribution formal income statement can be prepared for the next quarter.

Answer 1

Units sold Shipping Expense 2,47,000 High activity level Low activity level Change 49,000 31,000 18,000 1,75,000 72,000 Variable cost per unit Fixed cost element 4.00 51,000 Y=51000+4x Budgeted contribution format income statement for the first quarter, year 3 :- Particulars Amount $ Amount $ 21,45,000 10,92,000 1,28,700 1,56,000 13,76,700 7,68,300 Sales Revenue (39000*55) Less: Variable expenses Cost of goods sold (39000-28) Sales commissions @6% of sales Shipping expense (39000*4) Total Variable expenses Contribution margin Less: Fixed expenses Administrative salaries Advertising expense Shipping expense Insurance expense Depreciation expense Total fixed expenses Net Income 95,000 1,85,000 51,000 10,500 65,000 4,06,500 3,61,800