Alden company has decided to use a contribution format

Reference no: EM13580901

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	$25 per unit sold
Advertising expense	$175,000 per quarter
Sales commissions	7% of sales
Administrative salaries	$85,000 per quarter
Shipping expense	?
Depreciation expense	$55,000 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 are given below:

Quarter	Units Sold	Shipping Expense
Year 1:
First	21,000	$165,000
Second	23,000	$180,000
Third	28,000	$222,000
Fourth	24,000	$185,000
Year 2:
First	22,000	$175,000
Second	25,000	$190,000
Third	35,400	$237,000
Fourth	32,400	$213,000

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.

Y = $ + $ X

2.	In the first quarter of Year 3, the company plans to sell 31,000 units at a selling price of $55 per unit. Prepare a contribution format income statement for the quarter. (Input all amounts as positive values except losses which should be indicated by a minus sign.)

Alden Company Budgeted Contribution Format Income Statement For the First Quarter of Year 3
Sales		$
Variable expenses:
(Click to select)Cost of goods sold	$
(Click to select)Depreciation expenseShipping expenseSales commissionsAdvertising expenseCost of goods soldAdministrative salaries
(Click to select)Shipping expenseDepreciation expenseAdvertising expenseCost of goods soldAdministrative salariesSales commissions

Total variable expenses

Contribution margin
Fixed expenses:
Shipping expense
Sales commissions
Depreciation expense
Advertising expense

Total fixed expenses

Net operating income		$

Reference no: EM13580901

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