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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 Formula Cost of good sold $22 per unit sold Advertising expense $172,000 per quarter Sales commissions 5% of sales Shipping expense Administrative salaries $82,000 per quarter Insurance expense $9,200 per quarter Depreciation expense $52,000 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 follow: Quarter Year 1: First Second Third Fourth Year 2: First Second Third Shipping Units Sold Expense 18,000 $162,000 20,000 $ 177,000 25,000 $ 219,000 21,000 $ 182,000 19,000 22,000 30,000 $ 172,000 $ 187,000 $234,000 Milden Company's president 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. High activity level Low activity level Change Shipping Units Sold Expense 30,000 $ 234,000 18,000 162,000 12,000 $ 72,000 Variable cost per unit Fixed cost element $ $ 6 per unit 54,000 Y= 54,000 $ 6X 2. In the first quarter of Year 3, the company plans to sell 25,000 units at a selling price of $52 per unit. Prepare a contribution format income statement for the quarter. (Do not round your intermediate calculations.) Milden Company Budgeted Contribution Format Income Statement For the First Quarter, Year 3 $ 1,300,000 Variable expenses: Cost of goods sold $ 550,000 Sales commissions 65,000 Shipping expense 150,000 765,000 535,000 Total variable expenses Contribution margin Fixed expenses: Advertising expense Shipping expense Administrative salaries Insurance expense Depreciation expense 172,000 54,000 82,000 9,200 52,000

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