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.