Alden Company has decided to use a contribution format income statement for inte
ID: 2349757 • Letter: A
Question
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:
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:
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.
Using the high-low method, estimate a cost formula for shipping expense based on the data for the last eight quarters above. (Omit the "$" sign in your response.)
In the first quarter of Year 3, the company plans to sell 31,000 units at a selling price of $58 per unit. Prepare a contribution format income statement for the quarter. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)
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:
Explanation / Answer
1.
high: $240,000, 38,400 units
low: $168,000, 24,000 units
slope: (240,000-168,000)/(38,400-24,000) = 72,000/14,400 = 5
intercept: 240,000 = 38,400*5 + intercept
intercept = 48,000
cost formula: Y = $48,000 + $5X
2.
1798000
(31000*58)
variable expenses:
868000
(31000*28)
107880
(1798000*.06)
155000
(31000*5)
total variable expenses
1130880
667120
fixed expenses:
178000
88000
58000
48000
total fixed expenses
372000
295120
2.
1798000
(31000*58)
variable expenses:
868000
(31000*28)
107880
(1798000*.06)
155000
(31000*5)
total variable expenses
1130880
667120
fixed expenses:
178000
88000
58000
48000
total fixed expenses
372000
295120
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