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High-Low Method; Contribution Format Income Statement

Resolved Question:

High-Low Method; Contribution format income statement

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 $20 per unit sold
Advertising expense $170,000 per quarter
Sales commission 5% of sales
Administrative expense 80,000 per quarter
Shipping expense ?
Depreciation expense 50,000 per quarter

Management has concluded that shipping expense is a mixed cost, containing both variable and fixed cost elements.
Units sold and the remaining shipping expense over the last 8 quarters are given below:

Quarter Units Sold

Year1:
...First 16000
...Second 18000
...Third 23000
...Fourth 19000

Year2:
...First 17000
...Second 20000
...Third 25000
...Fourth 22000

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. "

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

2. In the first quarter of year 3, the company plans to sell 21,000 units at the selling price of $50 per unit. Prepare
a Contribution Format Income Statement for the quarter

Submitted: 3 years ago.
Category: Homework
Expert:  Linda_us replied 3 years ago.

Thanks for requesting me.

What is your deadline for this question?

Regards

Linda

Customer: replied 3 years ago.

About 1/2 hour.

Use this version because I missed a column in the previous one. Thanks.

High-Low Method; Contribution format income statement

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 $20 per unit sold
Advertising expense $170,000 per quarter
Sales commission 5% of sales
Administrative expense 80,000 per quarter
Shipping expense ?
Depreciation expense 50,000 per quarter

Management has concluded that shipping expense is a mixed cost, containing both variable and fixed cost elements.
Units sold and the remaining shipping expense over the last 8 quarters are given below:

Quarter Units Sold Shipping Expense

Year1:
First 16000 160000
Second 18000 175000
Third 23000 217000
Fourth 19000 180000

Year2:
First 17000 170000
Second 20000 185000
Third 25000 232000
Fourth 22000 208000

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.

1. Using the high-low method, estimate a cost formula for shipping expense.
2. In the first quarter of year 3, the company plans to sell 21,000 units at the selling price of $50 per unit.
Prepare a Contribution Format Income Statement for the quarter.

Expert:  Linda_us replied 3 years ago.
I am working on it. I will upload the solution soon.
Regards
Linda
Customer: replied 3 years ago.

Thanks!

Expert:  Linda_us replied 3 years ago.
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Experience: Post Graduate Diploma in Management (MBA)
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