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 |
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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 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.
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| Required: |
| 1. |
Using the high-low method, estimate a cost formula for shipping expense based on the data for the last eight quarters above.
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| 2. |
In the first quarter of Year 3, the company plans to sell 31,000 units at a selling price of $55 per unit. Prepare a contribution format income statement for the quarter. (Input all amounts as positive values except losses which should be indicated by a minus sign.)
|
Alden Company
Budgeted Contribution Format Income Statement
For the First Quarter of Year 3 |
| Sales |
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$ |
| Variable expenses: |
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| (Click to select)Cost of goods sold |
$ |
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| (Click to select)Depreciation expenseShipping expenseSales commissionsAdvertising expenseCost of goods soldAdministrative salaries |
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| (Click to select)Shipping expenseDepreciation expenseAdvertising expenseCost of goods soldAdministrative salariesSales commissions |
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| Total variable expenses |
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| Contribution margin |
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| Fixed expenses: |
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| Shipping expense |
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| Sales commissions |
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| Depreciation expense |
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| Advertising expense |
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| Total fixed expenses |
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| Net operating income |
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$ |
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