Check my Milden Company is a distributor who wants to start

Check my 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: Cost of good sold Advertiaing expense Sales commiaaions Shipping expense $29 per unit sold $179,000 per quarter 8% of sales aries Insurance expense Depreciation expense $89,000 per quarter $9.900 per quarter 59,000 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: Shipping Qua Year 1 Units Sold Expense First Second Third Tourth 25,000 169,000 27,000 184,000 32,000 226,000 28,000 $189,000 Year 2: Pirst Second Third Fourth 26,000 179,000 29,000 194,000 37,000 $241,000 34,000 $217,000 Required: Prev 2cf 2 Next

Solution

Requirement 1

Y=a+bX

High units sold = 37000 and high shipping expense = 241000

Low units sold = 25000 and low shipping expense = 169000

b = (241000-169000)/(37000-25000) = 6

plug in any x and y

169000 = a + 6(25000)

a = 169000-(6*25000) = 19000

Requirement 2

Milden Company

Budgeted contribution format income statement

For the first quarter, year 3

sales

1947000

Variable expenses:

Sales commission

155760

Shipping expense (variable portion)

198000

Cost of goods sold

957000

Total variable expenses

1310760

Contribution margin

636240

Fixed expenses:

Advertising expense

179000

Administrative expense

89000

Shipping expense (fixed portion)

19000

Insurance expense

9900

Depreciation expense

59000

Total fixed expenses

355900

Net operating income

280340

Sales = 33000*59 = 1947000

Sales commission = 8% of1947000 =155760

Shipping expense = 33000*6 = 198000

Cost of goods sold = 33000*29 = 957000

Contribution margin = sales – total variable expenses

Net operating income = contribution margin – total fixed expenses

Milden Company
Budgeted contribution format income statement
For the first quarter, year 3
sales		1947000
Variable expenses:
Sales commission	155760
Shipping expense (variable portion)	198000
Cost of goods sold	957000
Total variable expenses		1310760
Contribution margin		636240
Fixed expenses:
Advertising expense	179000
Administrative expense	89000
Shipping expense (fixed portion)	19000
Insurance expense	9900
Depreciation expense	59000
Total fixed expenses		355900
Net operating income		280340