Milden Company has an exclusive franchise to purchase a product from the manufac
ID: 2328502 • Letter: M
Question
Milden Company has an exclusive franchise to purchase a product from the manufacturer and distribute it on the retail level prepare such a statement, the company has analyzed its expenses and has developed the following cost formulas . As an aid in planning, the company has decided to start using a contribution Cost Cost of good sold Advertising expense Sales commissions Shipping expense Administrative salaries Insurance expense Depreciation expense 527 per unit sold 5184,000 per quarter 7% of sales 594.000 per quarter $10.400 per quarter 564,000 per quarter Management has concluded that shipping expense is a mixed cost. containing both varnable and fixed cost elements. Units sokd and the related shipping expense over the last eight quarters follow Shipping Units SoldExpense Year 1 First Second Third Fourth 30,000$174.000 32,000$189,000 37,000 $231,000 33,000 $194,000 Year 2 First Second Third Fourth 31,000$184 000 34,000 199.000 44 400 $246,000 41,400 $222 000 Miden 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 form 2 PMExplanation / Answer
1) using the high low method estimated a cost formula for shipping expenses high low method particulars shipping exp sold unit High activity level 246000 44400 low activity level 174000 30000 changes 72000 14400 variable cost per unit = change in cost/change in units = 72000/14400 = 5 per unit fixed cost = total cost - variable cost fixed cost = 246000- (44400*5) = 24000 cost formula = total fixed cost +(variable rate*output unit) = 24000+5xno of unit milden company budgeted contribution format statement for the 1st quarter year 3 Sales $ 20,35,000.00 Variable expenses cost of goods sold(37000*27) $ 9,99,000.00 sales commission (2035000*7%) $ 1,42,450.00 shipping exp(37000*5) $ 1,85,000.00 total variable expense $ 13,26,450.00 contribution margin $ 7,08,550.00 less: fixed cost Advertising expenses $ 1,84,000.00 shipping exp $ 24,000.00 andministrative exp $ 94,000.00 insurance exp $ 10,400.00 depreciation exp $ 64,000.00 total fixed expenses $ 3,76,400.00 net operating income $ 3,32,150.00 Net income is $ 332150