Question

Marwick's Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,495 per unit and then sells them to retail customers for an average price of $2,500 each. The company's selling and administrative costs for a typical month are presented below: Cost Formula Costs Selling: Advertising Sales salaries and commissions Delivery of pianos to customers Utilities Depreciation of sales facilities Administrative: Executive salaries Insurance Clerical Depreciation of office equipment $939 per month $4,777 per month, plus 6% of sales $63 per piano sold $654 per month $5,035 per month $13, 415 per month $712 per month $2,499 per month, plus $42 per piano sold $923 per month During August, Marwick's Pianos, Inc., sold and delivered 61 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.

Answer 1

Answer 1.

152500 91195 61305 MARWICK'S PIANOS, INC. Traditional Income Statement For the Month of August Sales ($2,500 * 61) Cost of Goods Sold ($1,495 * 61) Gross Profit Selling and Administrative Expenses: Selling Expenses: Advertising Sales Salaries and Commissions ($4,777 + $152,500*6%) Utilities Depreciation of Sales Facilities Delivery of Pianos ($63*61) Total Selling Expenses Administrative Expenses: Insurance Executive Salaries Depreciation of Office Equipment Clerical ($2,499 + $42 * 61) Total Administrative Expenses Total Selling and Administrative Expenses Net Operating Income 939 13927 654 5035 3843 24398 712 13415 923 5061 20111 44509 16796

Answer 2.

Per Piano 2500 MARWICK'S PIANOS, INC. Contribution Format Income Statement For the Month of August Total Sales 152500 Variable Expenses: Clerical 2562 Sales Commissions 9150 Delivery of Pianos 3843 Cost of Goods Sold 91195 Total Variable Expenses 106750 Contribution Margin 45750 Fixed Expenses: Advertising 939 Depreciation of Sales Facilities 5035 Utilities 654 Executive Salaries 13415 Insurance 712 Depreciation of Office Equipment 923 Clerical 2499 Sales Salaries 4777 Total Fixed Expenses 28954 Net Operating Income 16796 42 150 63 1495 1750 750