Question

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 $32 per unit sold $188,000 per quarter 8% of sales Cost Cost of good sold Advertising expense Sales commissions Shipping expense Administrative salaries Insurance expense Depreciation expense $98,000 per quarter $10,800 per quarter $68,000 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: Units Sold Shipping Expense Quarter Year 1: First Second Third Fourth Year 2: First Second Third Fourth 34,000 36,000 41,000 37,000 $ 178,000 $ 193,000 $235,000 $198,000 35,000 38,000 52,000 49,000 $188,000 $203,000 $250,000 $226,000 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 Expense Units Sold High activity level Low activity level Change 0 $ per unit Variable cost per unit Fixed cost element

Please help! I entered some accounts in the statement, but I hardly know if they are correct or not.

Please help with entire problem

Answer 1

1)
				units	Shipping
				Sold	expense
	High activity level			52,000	250,000
	low activity level			34,000	178,000
	change			18,000	72,000
	Variable cost per unit			4	per unit
	Fixed cost element			42000
	Variable cost per unit = 72000/18000 = $4per unit
	Fixed cost element     = 250,000-(52000*4)=				42,000
	Y=	42,000	+	4	X
2)	Milden Company
	Budgeted Contribution Format Income Statement
	For the First Quarter , year 3
	Sales		(39000*65)			2535000
	Variable expenses:
	Cost of goods sold		(39000*32)		1248000
	Sales commission		(2535000*8%)		202800
	Shipping expense		(39000*4)		156000
	total variable expense					1606800
	Contribution margin					928200
	Fixed expenses
	Advertising expense				188,000
	Shipping expense				42,000
	Administrative salaries				98,000
	insurance expense				10,800
	Depreciation expense				68,000
	total fixed expense					406,800
	Net income					521,400