Milden Company has an exclusive franchise to purchase a prod

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 Cost Cost of good sold Advertising expense Sales commissions Shipping expense Administrative salaries Insurance expense Depreciation expense Cost Formula $35 per unit sold $210,000 per quarter 6% of sales $145,000 per quarter $9,000 per quarter $76,000 per quarter

Solution

1. Cost formula under high low method :

Fixed cost = Total cost-variable cost

= 210000-(20000*9.10)

Fixed cost = 28000

	Units sold	Shipping expense
High activity level	20000	210000
Low activity level	10000	119000
Change	10000	91000
Variable cost per unit	9.10	Per unit
Fixed cost element	28000