high-low method, accounting assignment help
high-low method, accounting assignment help
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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: |
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Cost |
Cost Formula |
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Cost of good sold |
$24 per unit sold |
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Advertising expense |
$174,000 per quarter |
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Sales commissions |
8% of sales |
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Shipping expense |
? |
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Administrative salaries |
$84,000 per quarter |
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Insurance expense |
$9,400 per quarter |
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Depreciation expense |
$54,000 per quarter |
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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: |
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Quarter |
Units Sold |
Shipping |
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Year 1: |
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First |
20,000 |
$ |
164,000 |
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Second |
22,000 |
$ |
179,000 |
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Third |
27,000 |
$ |
221,000 |
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Fourth |
23,000 |
$ |
184,000 |
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Year 2: |
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First |
21,000 |
$ |
174,000 |
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Second |
24,000 |
$ |
189,000 |
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Third |
38,000 |
$ |
236,000 |
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Fourth |
35,000 |
$ |
212,000 |
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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. |
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Required: |
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1. |
Using the high-low method, estimate a cost formula for shipping expense based on the data for the last eight quarters above. |
