Milden Company has an exclusive franchise to purchase a product from the manufac

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 expenses and has developed the following cost formulas Cost Cost of good sold Advertising expense Sales commissions Shipping expense Administrative salaries Insurance expense Depreciation expense Cost Formula $35 per unit sold $210,000 per quarter 6% of sales $145,000 per quarter $9,000 per quarter $76,000 per quarter

Explanation / Answer

1. Cost formula under high low method :

Fixed cost = Total cost-variable cost

= 210000-(20000*9.10)

Fixed cost = 28000

Units sold Shipping expense High activity level 20000 210000 Low activity level 10000 119000 Change 10000 91000 Variable cost per unit 9.10 Per unit Fixed cost element 28000

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