Milden Company has an exclusive franchise to purchase a product from the manufac
ID: 2519566 • Letter: M
Question
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 has developed the following cost formulas: expenses and Cost Formu Cost Cost of good sold Advertising expense Sales commissions Shipping expense Administrative salaries Insurance expense Depreciation expense $30 per unit sold $186,000 per quarter 8% of sales $96,000 per quarter $10,600 per quarter $66,000 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 Shipping Units Sold Expense Quarter Year 1 First Second Third Fourth 32,000 $176,000 34,000 $191,000 39,000 $233,000 35,000 $196,000 Year 2 First Second Third Fourth 33,000 $186,000 36,000 $201,000 46,400 $248,000 43,400 $224.000 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 quarterExplanation / Answer
1) units Shipping Sold expense High activity level 46,400 248,000 low activity level 32,000 176,000 change 14,400 72,000 Variable cost per unit 5 per unit Fixed cost element 16000 Variable cost per unit = 72000/14400 = $5per unit Fixed cost element = 248,000-(46400*5)= 16,000 Y= 16,000 + 5 X 2) Milden Company Budgeted Contribution Format Income Statement For the First Quarter , year 3 Sales (41000*59) 2419000 Variable expenses: Cost of goods sold (41000*30) 1230000 Sales commission (2419000*8%) 193520 Shipping expense (41000*5) 205000 total variable expense 1628520 Contribution margin 790480 Fixed expenses Advertising expense 186,000 Shipping expense 16,000 Administrative salaries 96,000 insurance expense 10,600 Depreciation expense 66,000 total fixed expense 374,600 Net income 415,880