Problem 1-21 Traditional and Contribution Format Income Statements [LO1-6]
Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,483 per unit and then sells them to retail customers for an average price of $2,300 each. The company’s selling and administrative costs for a typical month are presented below:
Costs | Cost Formula | |
Selling: | ||
Advertising | $ | 943 per month |
Sales salaries and commissions | $ | 4,807 per month, plus 3% of sales |
Delivery of pianos to customers | $ | 59 per piano sold |
Utilities | $ | 657 per month |
Depreciation of sales facilities | $ | 4,962 per month |
Administrative: | ||
Executive salaries | $ | 13,504 per month |
Insurance | $ | 697 per month |
Clerical | $ | 2,500 per month, plus $37 per piano sold |
Depreciation of office equipment | $ | 897 per month |
During August, Marwick’s Pianos, Inc., sold and delivered 57 pianos.
Required:
1. Prepare a traditional format income statement for
August.
2. Prepare a contribution format income statement for August. Show
costs and revenues on both a total and a per unit basis down
through contribution margin.
|
down through contribution margin. (A "Net operating loss" should be entered as a negative number.)
|
Solution 1:
Traditional Income Statement - Marwick Pianos Inc. | ||
Particulars | Details | Amount |
Sales (2300*57) | $131,100.00 | |
Less: Cost of Goods Sold (1483*57) | $84,531.00 | |
Gross Profit | $46,569.00 | |
Sellling Expenses: | ||
Advertising | $943.00 | |
Sales Salaries and Commissions (4807 + 3% of 131100) | $8,740.00 | |
Delivery of Pianos to customers (59*57) | $3,363.00 | |
Utilities | $657.00 | |
Depreciation of Sales Facilities | $4,962.00 | $18,665.00 |
Administrative Expenses: | ||
Executive Salaries | $13,504.00 | |
Insurance | $697.00 | |
Clerical (2500 + 37*57) | $4,609.00 | |
Depreciation of office equipment | $897.00 | $19,707.00 |
Net Income | $8,197.00 |
Solution 2:
Contribution margin Income Statement - Marwick Pianos Inc. | ||
Particulars | Per Unit | Total |
Sales | $2,300.00 | $131,100.00 |
Variable Cost: | ||
Purchase Cost | $1,483.00 | $84,531.00 |
Sales Commission | $69.00 | $3,933.00 |
Delivery of Pianos to customers | $59.00 | $3,363.00 |
Clerical Expense | $37.00 | $2,109.00 |
Contribution | $652.00 | $37,164.00 |
Fixed Cost: | ||
Advertising | $943.00 | |
Sales Salaries | $4,807.00 | |
Utilities | $657.00 | |
Depreciation of Sales Facilities | $4,962.00 | |
Executive Salaries | $13,504.00 | |
Insurance | $697.00 | |
Clerical | $2,500.00 | |
Depreciation of office equipment | $897.00 | |
Net Income | $8,197.00 |
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