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
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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 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
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