PROBLEM 3-16 High-Low Method; Contribution Format Income Statement LO3, L04] 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 Inalyzed its expenses and has developed the following cost formulas: Cost Cost Formula Cost of good sold Advertising expense Sales commissions Shipping expense Administrative salaries Insurance expense Depreciation expense $35 per unit sold $210,000 per quarter 6% of sales 2 $145,000 per quarter $9,000 per quarter $76,000 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 10,000 16,000 18,000 15,000 Year 1: First Second Third Fourth Year 2: First Second Third Fourth $119,000 $175,000 $190,000 $164,000 11,000 17,000 20,000 13,000 $130,000 $185,000 $210,000 $147,000 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. Requred: Using the high-low method, estimate a cost formula for shipping expense. 2 In the first quarter of Year 3, the company plans to sell 12,000 units at a selling price of S100 per unit. Prepare a contribution format income statement for the quarter