Check my Milden Company is a distributor who wants to start using a contribution
ID: 2604698 • Letter: C
Question
Check my Milden Company is a distributor who wants to start using a contribution format income statement for planning purposes. The company has analyzed its expenses and developed the following cost formulas: Cost of good sold Advertiaing expense Sales commiaaions Shipping expense $29 per unit sold $179,000 per quarter 8% of sales aries Insurance expense Depreciation expense $89,000 per quarter $9.900 per quarter 59,000 per quarter Because shipping expense is a mixed cost, the company needs to estimate the variable shipping expense per unit sold and the fixed shipping expense per quarter using the following data: Shipping Qua Year 1 Units Sold Expense First Second Third Tourth 25,000 169,000 27,000 184,000 32,000 226,000 28,000 $189,000 Year 2: Pirst Second Third Fourth 26,000 179,000 29,000 194,000 37,000 $241,000 34,000 $217,000 Required: Prev 2cf 2 NextExplanation / Answer
Requirement 1
Y=a+bX
High units sold = 37000 and high shipping expense = 241000
Low units sold = 25000 and low shipping expense = 169000
b = (241000-169000)/(37000-25000) = 6
plug in any x and y
169000 = a + 6(25000)
a = 169000-(6*25000) = 19000
Requirement 2
Milden Company
Budgeted contribution format income statement
For the first quarter, year 3
sales
1947000
Variable expenses:
Sales commission
155760
Shipping expense (variable portion)
198000
Cost of goods sold
957000
Total variable expenses
1310760
Contribution margin
636240
Fixed expenses:
Advertising expense
179000
Administrative expense
89000
Shipping expense (fixed portion)
19000
Insurance expense
9900
Depreciation expense
59000
Total fixed expenses
355900
Net operating income
280340
Sales = 33000*59 = 1947000
Sales commission = 8% of1947000 =155760
Shipping expense = 33000*6 = 198000
Cost of goods sold = 33000*29 = 957000
Contribution margin = sales – total variable expenses
Net operating income = contribution margin – total fixed expenses
Milden Company
Budgeted contribution format income statement
For the first quarter, year 3
sales
1947000
Variable expenses:
Sales commission
155760
Shipping expense (variable portion)
198000
Cost of goods sold
957000
Total variable expenses
1310760
Contribution margin
636240
Fixed expenses:
Advertising expense
179000
Administrative expense
89000
Shipping expense (fixed portion)
19000
Insurance expense
9900
Depreciation expense
59000
Total fixed expenses
355900
Net operating income
280340