Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: Sales Beginning merchandise inventory Purchases Ending merehandise inventory Fixed selling expense Pixed administrative expense Varlable selling expense Varlable adminiatrative expense Contribution margin Net operating incone $ 420, 000 S 28,000 S 280,000 $14, 000 S 16,800 $ 21,000 S 84,000 S 25,200 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 Calculate the contribution margin per unit. 6. Which Income statement format (raditiona 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

Ans.	TODRICK COMPANY
	Traditional Income Statement
	Sales		420000
	Cost of goods sold		294000
	Gross margin		126000
	Selling and Administrative expenses:
	Selling expenses	63000
	Administrative expenses	37800
	Total selling and administrative expenses		100800
	Net operating income		25200
	*Working Notes:
1	Cost of goods sold = Beginning inventory + Purchase - Ending inventory
	28000 + 280000 - 14000
		294000
2	Total selling expenses = Variable selling expenses + Fixed selling expenses
		21000 + 42000
		63000
	*Total fixed expenses = Contribution margin - Net operating income
		84000 - 25200
		58800
	*Fixed selling expenses = Total fixed expenses - Fixed administrative expenses
		58800 - 16800
		42000
3	Total administrative expenses = Variable administrative expenses + Fixed administrative expenses
		21000 + 16800
		37800
	*Total variable expenses =   Sales - Contribution margin
	420000 - 84000
	336000
	*Variable administrative expenses = Total variable expenses - Cost of goods sold - variable selling expenses
		336000 - 294000 - 21000
		21000