The following is data from the Coft Company which manufactures and sells helmets. Cost Cost Formula Cost
Question:
The following is data from the Coft Company which manufactures and sells helmets.
Cost | Cost Formula |
| Cost of goods sold (variable) | $140.000 per unit sold |
| Advertising expenses | $ 840.000.000 per quarter |
| Sales commissions | 20% of sales |
| Shipping expense | ? |
| Executive salaries | $540.000.000 per quarter |
| Sales salaries | $36.000.000 per quarter |
| Depreciation of sales facilities | $300.000.000 per quarter |
| Depreciation of office equipment | $40.000.000 per quarter |
| Total manufacturing overhead cost | $160.000.000 per quarter |
Management has concluded that shipping costs are mixed cost, which contains both variable and fixed cost elements. Units sold and associated shipping costs over the past eight quarters:
| Month | Units sold | Shipping Expense ($) |
| Year 1: | ||
| January | 5.000 | 101.500.000 |
| February | 6.000 | 110.600.000 |
| March | 9.000 | 137.900.000 |
| April | 10.500 | 151.550.000 |
| May | 10.000 | 147.000.000 |
| June | 11.500 | 160.650.000 |
| July | 11.000 | 156.100.000 |
| August | 12.000 | 165.200.000 |
| September | 13.000 | 174.300.000 |
| October | 12.500 | 169.750.000 |
| November | 13.500 | 178.850.000 |
| December | 4.000 | 92.400.000 |
| Month | Units sold | Shipping Expense ($) |
| Year 2: | ||
| January | 6.500 | 115.150.000 |
| February | 7.500 | 124.250.000 |
| March | 8.000 | 128.800.000 |
| April | 14.000 | 183.400.000 |
| May | 14.500 | 187.950.000 |
| June | 5.500 | 106.050.000 |
| July | 15.000 | 192.500.000 |
| August | 15.500 | 197.050.000 |
| September | 9.500 | 142.450.000 |
| October | 8.000 | 128.800.000 |
| November | 8.500 | 133.350.000 |
| December | 9.500 | 142.450.000 |
CFO of the Coft Company's wants to know the formula / calculation of reduced costs for shipping expenses so that an income statement with the budgeted contribution format can be prepared for the following quarter.
The Questions are:
a. By using the high-low method, estimate the cost calculation for shipping expense.
b. In the first quarter of Year 3, the company plans to sell 240,000 units at a selling price of $200,000 per unit. Please make an income statement of the variable cost contribution format for the first quarter of Year 3.
Expert Answer:
Step 1 High Low Method In cost accounting the high low method is used to calculate the variable cost ... View the full answer
