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:

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	$27 per unit sold
Advertising expense	$184,000 per quarter
Sales commissions	7% of sales
Administrative salaries	$94,000 per quarter
Shipping expense	?
Depreciation expense	$64,000 per quarter

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:

Quarter	Units Sold	Shipping Expense
Year 1:
First	30,000	$174,000
Second	32,000	$189,000
Third	37,000	$231,000
Fourth	33,000	$194,000
Year 2:
First	31,000	$184,000
Second	34,000	$199,000
Third	44,400	$246,000
Fourth	41,400	$222,000

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.

Required:
1.	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.)

Y = $ + $ X

2.

In the first quarter of Year 3, the company plans to sell 37,000 units at a selling price of $55 per unit. Prepare a contribution format income statement for the quarter. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

Alden Company Budgeted Income Statement For the First Quarter of Year 3
Sales		$
Variable expenses:
Cost of goods sold	$
Shipping expense
Sales commissions
Total variable expenses
Contribution margin
Fixed expenses:
Shipping expense
Advertising expense
Administrative salaries
Depreciation expense
Total fixed expenses
Net operating income		$

Explanation: 1.
High-low method:

	Units Sold		Shipping Expense
High activity level	44,400		$	246,000
Low activity level	30,000			174,000
Change	14,400		$	72,000

Variable cost per unit	=	Change in cost
		Change in activity

	=	$72,000	= $5 per unit
		14,400 units

Fixed cost element:

Total shipping expense at high activity level	$	246,000
Less variable element:     44,400 units × $5.00 per unit		222,000
Fixed cost element	$	24,000

Therefore, the cost formula is: Y = $24,000 + $5X.

2.

Sales: (37,000 units × $55 per unit) = $2,035,000

Cost of goods sold: (37,000 units × $27 per unit) = $999,000

Shipping expense: (37,000 units × $5 per unit) = $185,000

Sales commission: ($2,035,000 × .07) = $142,450