Question

Fanelli Corporation, a merchandising company, reported the following results for July:

Number of units sold 5,800

Selling price per unit $ 590

Unit cost of goods sold $ 410

Variable selling expense per unit $ 66

Total fixed selling expense $ 125,300

Variable administrative expense per unit $ 22

Total fixed administrative expense $ 207,200

Cost of goods sold is a variable cost in this company.

Required:

a. Prepare a traditional format income statement for July.

b. Prepare a contribution format income statement for July.

Answer 1

Answers

• All working forms part of the answer
• Requirement ‘a’

Traditional Income Statement

A = 5800 units x $ 590	Sales Revenue		$3,422,000
B = 5800 units x $ 410	Cost of Goods Sold		$2,378,000
C = A - B	Gross Profits		$1,044,000
	Operating expenses:
	Selling expenses--
D = 5800 units x $ 66	Variable	$382,800
E	Fixed	$125,300
	Administrative expenses--
F = 5800 units x $ 22	Variable	$127,600
G	Fixed	$207,200
H = D+E+F+G	Total Operating expenses		$842,900
I = C - H	Net Operating income		$201,100

• Requirement ‘b’

Contribution Format Income Statement

A = 5800 units x $ 590	Sales Revenue		$3,422,000
	Variable costs:
B = 5800 units x $ 410	Cost of Goods Sold	$2,378,000
C = 5800 units x $ 66	Variable selling expenses	$382,800
D = 5800 units x $ 22	Variable administrative expenses	$127,600
E = B+C+D	Total variable cost		$2,888,400
F = A - E	Contribution margin		$533,600
	Fixed Costs:
G	Fixed selling expense	$125,300
H	Fixed administrative expense	$207,200
I = G+H	Total Fixed Cost		$332,500
J = F - I	Net Operating Income		$201,100