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## Alden Company has decided to use a contribution format income statement for internal planning purposes. The company has analyzed its expenses and has ...

2012-12-18
Sale: 2

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Question:

Alden Company has decided to use a contribution format income statement for internal planning purposes. The company has analyzed its expenses and has developed the following cost formulas:

Cost                                     Cost Formula

Cost of goods sold                         \$33 per unit sold

Advertising expense                       \$189,000 per quarter

Sales commissions                          8% of sales

Administrative salaries                                 \$99,000 per quarter

Shipping expense                               ?

Depreciation expense                    \$69,000 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 is given below:

Quarter                                Units Sold                           Shipping Expense

Year 1:

First                                                       35,000                   \$179,000

Second                                                 37,000                   \$194,000

Third                                                      42,000                   \$236,000

Fourth                                                  38,000                   \$199,000

Year 2:

First                                                       36,000                   \$189,000

Second                                                 39,000                   \$204,000

Third                                                      53,000                   \$251,000

Fourth                                                  50,000                   \$227,000

Management 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.

2.            In the first quarter of Year 3, the company plans to sell 41,000 units at a selling price of \$66 per unit. Prepare a contribution format income statement for the quarter.

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