Alden company has decided to use a contribution format

Reference no: EM13586960

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 of goods sold $20 per unit sold
advertising expense $170000 per quarter
sales commissions 5% of sales
Administrative salaries $80000 per quarter
shipping expense ?
Depreciation expense $50000 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:

Year 1

First 16000 units sold $160000 shipping expense
second 18000 units sold $175000 shipping expense
third 23000 units sold $217000 shipping expense
fourth 19000 units sold $180000 shipping expense

Year 2

First 17000 units sold $170000 shipping expense
second 20000 units sold $185000 shipping expense
third 25000 units sold $232000 shipping expense
fourth 22000 units sold $208000 shipping expense

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:

Using the high-low method, estimate a cost formula for shipping expense.

In the first quarter of Year 3, the company plans to sell 21000 units at a selling price of $50 per unit. Prepare a contribution format income statement for the quarter.

Reference no: EM13586960

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