Question

Seved nter 56 has analyzed its expenses and developed the following cost formulas: Cost of good sold Advertising expense Sales commissions Shipping expense Administrative salaries Insurance expense Depreciation expense Cost Formula $26 per unit sold $176,000 per quarter # of sales ? $86,000 per quarter $9,600 per quarter $56,000 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: Units Sold Shipping Expense Quarter Year 1: Pirst Second Third Fourth Year 20 First Second Third Fourth 22,000 24,000 29,000 25,000 $ 166,000 $ 181,000 $ 223,000 $ 186,000 23,000 26,000 34,000 31,000 $ 176,000 $191,000 $ 238,000 $ 214,000 Required: 1. Using the high-low method, estimate a cost formula for shipping expense in the form Ya+bx. 2. In the first quarter of Year 3, the company plans to sell 27,000 units at a selling price of $56 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 - 3 + bx. (Required Required 2 >

Answer 1

Units Calculation of Shipping Expenses variable and Fixed: Particulars High Level Low Level Difference Cost 34000 $ 22000 $ 12000 $ 2,38,000 1,66,000 72,000 $ Difference in Cost Difference in units Variable cost per unit 72,000 12000 6 $ Working A B High Level Low Level $ 2,38,000 $ 1,66,000 34000 22000 $ 6 $ 6 $ 2,04,000 $ 1,32,000 $ 34,000 $ 34,000 Total Cost Total Units Variable cost per unit Total Variable cost Total Fixed Cost с D = B x C E = A-D Hence, Variable shipping expense = $ 6 per unit Fixed shipping expense = $ 34000 per quarter Cost Formula for shipping expense: Y = a +bX Y [total shipping expense] = $ 34,000 + ($6.00 x Units) Amount $ 15,12,000 7,02,000 1,20,960 1,62,000 Contribution margin format income statement Particulars Amount Sales Revenue (27000*56) Variable costs: Cost of Goods Sold $ Sales Commission $ Shipping Expenses $ Total variable cost Contribution margin Fixed Costs: Advertising expense $ Shipping Expenses $ Administrative salaries $ Insurance expense $ Depreciation expense $ Total Fixed Cost Net Income $ $ 9,84,960 5,27,040 1,76,000 34,000 86,000 9,600 56,000 $ 3,61,600 $ 1,65,440 * Kindly Comment down for any clarifications/ queries and please upvote.