Milden Company’s president would like a cost formula derived for shipping expens
ID: 2424275 • Letter: M
Question
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.
Using the high-low method, estimate a cost formula for shipping expense based on the data for the last eight quarters above.
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: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:
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 based on the data for the last eight quarters above.
Cost Cost Formula $30 per unit sold $180,000 per quarter 7% of sales Advertising expense Sales commissions Shipping expense Administrative salaries Insurance expense Depreciation expense $%90,000 per quarter $10,000 per quarter $60,000 per quarterExplanation / Answer
2) Y = 40000 + 5X
Units sold Shipping expenses High Activity Level 40400 242000 Low Activity Level 26000 170000 Change 3000 72000 Variable cost per Unit 5 Fixed cost 40000