Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold Sales s 255,e0e S 17,0ee s 170,0ee s s,see Beginning merchandise inventory Purchases Ending merchandise inventory Fixed selling expense Fixed administrative expense Variable selling expense Variable administrative expense Contribution margin Net operating income 1e, 2ee S 12,7se s 51,eee 15,3e0 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?

Please explain on how you came to this conclusion and the steps that were taken or formula's

Answer 1

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Answer 1)	Prepare a contribution format income statement.
	Contribution margin income statement
		Amt	Amt
	Sales		255000
	Less : Variable expenses
	Cost of goods sold (Note-1)	178,500
	Varaible selling expenses	12750
	Variable administrative expenses (Note-2)	12750	204,000
	Contribution margin		51,000
	Less : Fixed expenses
	Fixed administrative expenses	10,200
	Fixed selling expenses (note-3)	25500	35,700
	Net operating income		15,300
Note-1
	Computation of cost of goods sold
	Beginning merchandise inventory	17,000
Add	purchases	170,000
Less	Ending merchandise inventory	-8,500
	Cost of goods sold	178,500
Note -2.a
	Total variable expenses = Sales - Contribution margin
	Sales	255000
	Less Contribution margin	51000
	Variable expenses	204000
Note -2.b
	Computation of Variable administrative expense
	Total variable expenses	204000
Less :	Cost of goods sold	-178,500
Less :	Varaible selling expenses	-12750
Total	Variable administrative expenses	12750
Note 3
	Computation of fixed selling expenses
	Total fixed expenses = Contribution - Net income
	=51000-15300	35700
	Fixed selling expenses = Total fixed expenses - Fixed administrative expenses
	=35700-10200	25500
Answer 2)
	Prepare a traditional format income statement.
		Amt	Amt
	Sales		255000
	Less: Cost of goods sold		178,500
	Gross profit margin		76,500
	Expenses
	Varaible selling expenses	12750
	Variable administrative expenses	12750
	Fixed administrative expenses	10,200
	Fixed selling expenses	25,500
	Net operating income		15,300
Answer 3)	Calculate the selling price per unit.
	Total sales =	255000
	Unit sold=	1000
	Sales price per unit =255000/1000	255
Answer 4)	Calculate the variable cost per unit.
	Total variable expenses	204,000
	Unit sold=	1000
	Variable cost per unit	204
Answer 5)	Calculate the contribution margin per unit
	selling price per unit	255
	Variable cost per unit	204
	Contribution margin per unit	51
Answer 6)
	Contribution income statement will be more suitable for management to in estimating how net operating income will change in responses to changes in unit sales.