Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: Sales Beginning merchandise inventory Purchases Ending merchandise inventory Fixed selling expense Fixed administrative expense Variable selling expense Variable administrative expense Contribution margin Net operating income uuuuuuuu $ 435,000 $ 29,000 $ 290,000 $ 14,500 ? $ 17,400 $ 21,750 ? $ 87,000 $ 26,100 Required: 1. Prepare a contribution format income statement. 2. Prepare a traditional format income statement. 3. Calculate the selling price per unit. 4. Calculate the variable cost per unit. 5. Calculate the contribution margin per unit. 6. Which income statement format (traditional format or contribution format) would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales?

Answer 1

1.

Cost of goods sold = Beginning merchandise inventory+Purchases-Ending merchandise inventory

Cost of goods sold = $29,000+290,000-14,500 = $304,500

Todrick Company Contribution Format Income Statement
Sales		$435,000
Variable expenses:
Cost of goods sold	$304,500
Variable selling expense	21,750
Variable administrative expense ($348,000-304,500-21,750)	21,750
Total variable expense ($435,000-87,000)		348,000
Contribution margin		87,000
Fixed expenses:
Fixed selling expense ($60,900-17,400)	43,500
Fixed administrative expense	17,400
Total fixed expenses ($87,000-26,100)		60,900
Net operating income		$26,100

2.

Todrick Company Traditional Income Statement
Sales		$435,000
Cost of goods sold		(304,500)
Gross profit		130,500
Selling and administrative expenses:
Variable selling expense	$21,750
Fixed selling expense	43,500
Variable administrative expense	21,750
Fixed administrative expense	17,400	(104,400)
Net operating income		$26,100

3. Selling price per unit = $435,000 / 1,000 = $435

4. Variable cost per unit = $348,000 / 1,000 = $348

5. Contribution margin per unit = $87,000 / 1,000 = $87

6. Contribution income statement will be more useful to managers.