#### Question Details

##### [solution] » Milden Company has an exclusive franchise to purchase a product

Brief item decscription

Step-by-step solution file

Item details:

Milden Company has an exclusive franchise to purchase a product
More:

 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 ShippingExpense 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.)

STATUS
QUALITY
Approved

This question was answered on: Feb 21, 2020

Solution~000883566.zip (18.37 KB)