PROBLEM 5A-9 High-Low Method; Contribution Format Income Statement L05-10 Milden Company

PROBLEM 5A-9 High-Low Method; Contribution Format Income Statement L05-10 Milden Company is a distributor who wants to start using a contribution format income statement for planning purposes. The company has analyzed its expenses and 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 Because shipping expense is a mixed cost, the company needs to estimate the variable shipping expense per unit sold and the fixed shipping expense per quarter using the following data: Units Shipping Quarter Sold Expense 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 Required: 1. Using the high-low method, estimate a cost formula for shipping expense in the form Y = a + b.X. 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.

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