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PROBLEM 3-16 High-Low Method; Contribution Format Income Statement [LO3, LO4] 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 Sales commissions $35 per unit sold $210,000 per quarter 6% of sales Shipping expense. Administrative salaries ? $145,000 per quarter $9,000 per quarter $76,000 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 $119,000 $175,000 $190,000 $164,000 10,000 Second 16,000 Third 18,000 Fourth 15,000 Year 2: First 11,000 17,000 $130,000 $185,000 $210,000 $147,000 Second Third 20,000 Fourth 13,000 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. 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. 2.

PROBLEM 3-16 High-Low Method; Contribution Format Income Statement [LO3, LO4] 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 Sales commissions $35 per unit sold $210,000 per quarter 6% of sales Shipping expense. Administrative salaries ? $145,000 per quarter $9,000 per quarter $76,000 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 $119,000 $175,000 $190,000 $164,000 10,000 Second 16,000 Third 18,000 Fourth 15,000 Year 2: First 11,000 17,000 $130,000 $185,000 $210,000 $147,000 Second Third 20,000 Fourth 13,000 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. 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. 2.

Accounting
Accounting
27th Edition
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Chapter21: Cost-volume-profit Analysis
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Problem 21.4EX: Identify activity bases From the following list of activity bases for an automobile dealership,...
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using the hig low method, estimate a cost formula for shipping expense

PROBLEM 3-16 High-Low Method; Contribution Format Income Statement [LO3, LO4] 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 Sales commissions. Shipping expense $35 per unit sold $210,000 per quarter 6% of sales Administrative salaries $145,000 per quarter $9,000 per quarter $76,000 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 10,000 16,000 $119,000 $175,000 $190,000 $164,000 Second Third 18,000 Fourth 15,000 Year 2: First. 11,000 17,000 $130,000 $185,000 $210,000 $147,000 Second Third 20,000 13,000 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 formula for shipping expense. 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. 2.
Transcribed Image Text:PROBLEM 3-16 High-Low Method; Contribution Format Income Statement [LO3, LO4] 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 Sales commissions. Shipping expense $35 per unit sold $210,000 per quarter 6% of sales Administrative salaries $145,000 per quarter $9,000 per quarter $76,000 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 10,000 16,000 $119,000 $175,000 $190,000 $164,000 Second Third 18,000 Fourth 15,000 Year 2: First. 11,000 17,000 $130,000 $185,000 $210,000 $147,000 Second Third 20,000 13,000 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 formula for shipping expense. 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. 2.
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