The Accounting Department of Archer Company,a Merchandising Company,has Prepared the Following

Essay

The Accounting Department of Archer Company,a merchandising company,has prepared the following analysis:
$\begin{array}{|l|r|}\hline \text { Cost } & \text { Cost formula } \\\hline \text { Cost of goods sold } & \$ 56 \text { per unit } \\\hline \text { Sales commissions } & 12 \% \text { of sales } \\\hline \text { Advertising expense } & \$ 300,000 \text { per month } \\\hline \text { Administrative salaries } & \$ 160,000 \text { per month } \\\hline \text { Billing expense } & \$ \\\hline \text { Depreciation expense } & \$62,000 \text { per month } \\\hline\end{array}$
The Accounting Department feels that billing expense is a mixed cost,containing both fixed and variable cost elements.A tabulation has been made of billing expense and sales in units over the last several months,as follows:
$\begin{array}{|l|r|r|}\hline & \text { Units sold (000) } & \text { Billing expense } \\\hline \text { January } & 9 & \$ 30,000 \\\hline \text { February } & 11 & 33,000 \\\hline \text { March } & 14 & 36,000 \\\hline \text { April } & 17 & 42,000 \\\hline \text { May } & 15 & 39,000 \\\hline \text { June } & 12 & 35,000 \\\hline\end{array}$
The Accounting Department now plans to develop a cost formula for billing expense so that a contribution-type income statement can be prepared for management's use.
Required:
a.Using the least-squares regression method and the equations for a and b,estimate the cost formula for billing expense.
b.Assume that the company plans to sell 30,000 units during July at a selling price of $100 per unit.Prepare a budgeted income statement for the month,using the contribution format.