Question: Problem 1-23A High-Low Method; Contribution Format Income Statement [LO1-5, LO1-6] Milden Company has an exclusive franchise to purchase a product from the manufacturer and distribute
Problem 1-23A High-Low Method; Contribution Format Income Statement [LO1-5, LO1-6]
| 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 | $24 per unit sold | |
| Advertising expense | $174,000 per quarter | |
| Sales commissions | 8% of sales | |
| Shipping expense | ? | |
| Administrative salaries | $84,000 per quarter | |
| Insurance expense | $9,400 per quarter | |
| Depreciation expense | $54,000 per quarter | |
| 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: |
| Quarter | Units Sold | Shipping Expense | ||
| Year 1: | ||||
| First | 20,000 | $ | 164,000 | |
| Second | 22,000 | $ | 179,000 | |
| Third | 27,000 | $ | 221,000 | |
| Fourth | 23,000 | $ | 184,000 | |
| Year 2: | ||||
| First | 21,000 | $ | 174,000 | |
| Second | 24,000 | $ | 189,000 | |
| Third | 38,000 | $ | 236,000 | |
| Fourth | 35,000 | $ | 212,000 | |
| Milden Companys 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. |
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