Milden Company is a distributor who wants to start using a contribution format income statement for planning purposes. The company has analyzed its expenses and developed the following cost formulas: Page 277 Cost Cost Formula Cost of good sold $35 per unit sold Advertising expense $210,000 per quarter Sales commissions 6% of sales Shipping expense ? Administrative salaries $145,000 per quarter Insurance expense $9,000 per quarter Depreciation expense $76,000 per quarter Because shipping expense is a mixed cost, the company needs to estimate the variable shipping expense per unit sold and the fixed shipping expense per quarter using the following data: Quarter Units Sold Shipping Expense Year 1: First 10,000 $ 119,000 Second 16,000 $ 175,000 Third 18,000 $ 190,000 Fourth 15,000 $ 164,000 Year 2: First 11,000 $ 130,000 Second 17,000 $ 185,000 Third 20,000 $ 210,000 Fourth 13,000 $ 147,000
Required:
1. Using the high-low method, estimate a cost formula for shipping expense in the form Y = a + bx.
2. In the firat quarter of Year 3, the company plans to tell 12.000 units at a selling price of $100 per unit. Prepare a contribution format income statement for the quarter.