Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold:

Sales	$	390,000
Beginning merchandise inventory	$	26,000
Purchases	$	260,000
Ending merchandise inventory	$	13,000
Fixed selling expense	$	?
Fixed administrative expense	$	15,600
Variable selling expense	$	19,500
Variable administrative expense	$	?
Contribution margin	$	78,000
Net operating income	$	23,400

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

390,000 Part 1: Income Statement Contribution format income statement sales Variable expense: cost of goods sold selling expense Administrative expense 273,000 19,500 19,500d 312,000 78,000 Contribution margin Fixed expense: selling expense Administrative expense 39,000 15,600 b 54, 600 23,400 Net operating income Part 2: Traditional Income statement 390,000 273,000 117,000 sales cost of goods sold Gross margin Selling and administrative expenses selling expense Administrative expense 58,500f 35,100 g 93,600 23,400 Net operating income

Part 3: selling price per unit =sales/units (390000/1000) 390 Part 4: Variable cost per unit = Total variable cost/units (312000/1000) Part 5: contribution margin per unit=Total contribution margin/units (78000/1000) Part 6: contribution format 273,000 54,600 312,000 Working a COGS=Beginventory+Purchase-Ending inventory 26000+260000-13000 b Total FC=Total CM-NOI 78000-23400 c Total VC=Sales-Total CM 390000-78000 d Variable Adm expense=Total VC-COGS-Variable selling exp 312000-273000-19500 Fixed selling exp=Total FC-Fixed Adm exp 54600- 15600 Total selling exp=Variable selling exp+Fixed selling exp 19500+39000 Total adm exp=variable adm exp+fixed adm exp 19500+15600 19,500 39,000 58,500 35,100