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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa6d8a71c-a768-4e20-8ba5-a62a9df9787d%2F5aee06c3-a753-423f-b51a-d1a7bb3ab771%2Fm8i0yea_processed.jpeg&w=3840&q=75)
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.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education