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Milden Company has an exclusive franchise to purchase a product
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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 Formula
  Cost of good sold    $35 per unit sold
  Advertising expense    $210,000 per quarter
  Sales commissions    6% of sales
  Shipping expense    ?
  Administrative salaries    $145,000 per quarter
  Insurance expense    $9,000 per quarter  
  Depreciation expense    $76,000 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:

 

  Quarter     Units Sold Shipping
Expense
  Year 1:        
      First 10,000      $ 119,000  
      Second 16,000      $ 175,000  
      Third 18,000      $ 190,000  
      Fourth 15,000      $ 164,000  
  Year 2:        
      First 11,000      $ 130,000  
      Second 17,000      $ 185,000  
      Third 20,000      $ 210,000  
      Fourth 13,000      $ 147,000  

 

     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. (Do not round your intermediate calculations. Round the Variable cost per unit to 2 decimal places.)

   

         
         
 

2.

In the first quarter of Year 3, the company plans to sell 12,000 units at a selling price of $100 per unit. Prepare a contribution format income statement for the quarter. (Do not round your intermediate calculations.)

   

       

 







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