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Milden Company has an exclusive franchise to purchase a p

    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 $24 per unit sold Advertising expense $174,000 per quarter Sales commissions 8% of sales Shipping expense ? Administrative salaries $84,000 per quarter Insurance expense $9,400 per quarter Depreciation expense $54,000 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 Units Sold Shipping Expense Year 1: First 20,000 $ 164,000 Second 22,000 $ 179,000 Third 27,000 $ 221,000 Fourth 23,000 $ 184,000 Year 2: First 21,000 $ 174,000 Second 24,000 $ 189,000 Third 38,000 $ 236,000 Fourth 35,000 $ 212,000 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.

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