high-low method, accounting assignment help
high-low method, accounting assignment help
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 Formula |
|
Cost of good sold |
$24 per unit sold |
|
Advertising expense |
$174,000 per quarter |
|
Sales commissions |
8% of sales |
|
Shipping expense |
? |
|
Administrative salaries |
$84,000 per quarter |
|
Insurance expense |
$9,400 per quarter |
|
Depreciation expense |
$54,000 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 follow: |
Quarter |
Units Sold |
Shipping |
||
Year 1: |
||||
First |
20,000 |
$ |
164,000 |
|
Second |
22,000 |
$ |
179,000 |
|
Third |
27,000 |
$ |
221,000 |
|
Fourth |
23,000 |
$ |
184,000 |
|
Year 2: |
||||
First |
21,000 |
$ |
174,000 |
|
Second |
24,000 |
$ |
189,000 |
|
Third |
38,000 |
$ |
236,000 |
|
Fourth |
35,000 |
$ |
212,000 |
|
|
Milden Company’s president 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. |