# Page 1 of 2 Transcribed Image Text: Milden Company has an exclusive franchise to purchase a product from the manufacturer and distribute it on the retail level. As an aid

Page 1 of 2 Transcribed Image Text: 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
\$30 per unit sold
\$186,000 per quarter
8% of sales
Sales commissions
Shipping expense
\$98.000 per quarter
\$10,600 per quarter
\$66,000 per quarter
Insurance expense
Depreciation expense
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:
Shipping
Expense
Quarter
Units Sold
Year 1
First
32.000
\$176,000
\$191,000
\$233,000
\$196,000
Second
Third
34,000
39,000
35,000
Fourth
Year 2
First
33.000
\$186,000
\$201,000
\$248.000
Second
36,000
46,400
43,400
Third
\$224,000
Fourth
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 fomula for shipping expense based on the data for the last eight quarters above.
Shipping
Units Sold
Expense
gh activity level
Low activity level
Change
Variable cost per unit
per unit
Fixed cost element
Y=
X

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