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 Cost af good sold Advertieing expense Sales commissions Shipping expense Adrminislrative salaries Ineurance expense Depreciation expenee Cosi Forrula $30 per unit soid $180,000 per quarter 7% of sales $90,000 per quarler $10,000 per quarter $60,000 per quarter Management has concluded that shipping expense !в a mixed cost containing both variable and fixed cost elements. Units sold and the related shipping expense over the last eight quarters follow Shipping Quarle Year 1: Units Salt Expes 26,000 $170,00O 28,000 $145,000 33,00 $227,000 29,000 190,000 First Second Third Faur.h Year 2: 27,000 $180,00O 30,000 195,000 40,400 $242,000 37,400 $218,000 Firet Second Thir Faurth Milden Comipany's presidert would like a cost fornula derived for shipping cxense so that a budgeted contribution fornat income stalement can be prepared for the rnext quarier Required: 1·Using the highHow method, estimate a cost formula for shipping expense based on the data for the last eight quarters above Answer Is complete and correct. Shipping Units Sold 40,400 2200 2,00170,000 14,400 72,000 High actvity level Low activity Ieval Variable cost per unit Fixed cost elament per unit 40,000ク Answer is complete and correct. $ 50 40.000

Answer 1

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Naming convention is not available, can be slightly different: Ignore the unused blank lines: Solution: Budgeted Contribution Format Income Statement Sales Revenue Variable Expenses: Cost of goods sold Sales Commission Shipping Expense (35000 60) 2100000 (35000*30) (210000017%) (35000 5) 1050000 147000 175000 Total Variable Expenses Contribution Margin Fixed Expenses Advertising Expense Shipping Expense Admin Salaries Insurance Expense Depreciation Expense 1372000 728000 180000 40000 90000 10000 60000 Total Fixed Expenses Net Operating Income 380000 348000