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 Advertising expense $30 per unit sold $186,000 per quarter 8% of sales Sales commissions Shipping expense Administrative salaries $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 High activity level Low activity level Change Variable cost per unit per unit Fixed cost element Y= X

Question

Page 1 of 2

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
Advertising expense
$30 per unit sold
$186,000 per quarter
8% of sales
Sales commissions
Shipping expense
Administrative salaries
$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
High activity level
Low activity level
Change
Variable cost per unit
per unit
Fixed cost element
Y=
X

Image Transcription

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 Advertising expense $30 per unit sold $186,000 per quarter 8% of sales Sales commissions Shipping expense Administrative salaries $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 High activity level Low activity level Change Variable cost per unit per unit Fixed cost element Y= X

Expert Answer

Want to see the step-by-step answer?

See Answer

Check out a sample Q&A here.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

See Answer
*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.

Related Accounting Q&A

Find answers to questions asked by student like you

Q: A 25-year annuity was purchased with $225,000 that had accumulated in a RRSP.  The annuity provides ...

A: DefinitionRRSP:  A Registered Retirement Saving Plan is an investment cum retirement saving plan for...

Q: The MRS , professional soccer team, prepares financial statements on a monthly basis. The soccer sea...

A: Adjusting Entries: Adjusting entries refers to those journal entries which are prepared at the end o...

Q: Zenon Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day...

A: Flexible Budget: The flexible budget is a budget which modifies itself as per the variations in the ...

Q: Metallgurst AG issued a $100,00 4- year, 105 notes at face value to Bank of Norway on January 1, 201...

A: When the common stock is issued for settlement, the common stock needs to be credited by the face va...

Q: Which of the following is not an advantage of the corporate form of business? a. limited liability b...

A: Corporate is a popular form of business for the large and small industry. These types of business re...

Q: What should a MNC do to prevent bribery?

A: Bribery is the act of giving or receiving something of value in exchange for some kind of influence ...

Q: Waterways puts much emphasis on cash flow when it plans for capital investments. The company chose i...

A: Hey, since there are multiple sub-parts posted, we will answer first three sub-parts. If you want an...

Q: On January 1, 2018, the Mason Manufacturing Company began construction of a building to be used as i...

A: Capitalized Interest: Capitalized Interest refers to the interest charge on the acquisition of long ...

Q: Which of the following is correct? The gain basis for property received by gift is the lesser of th...

A: The tax basis of inherited or gifted property: Various tax rules are given under Federal tax in orde...