Question

Chapter 1 Exercises A 3 Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: 20 Sales $435,000 points Beginning merchandise inventory Purchases Ending merchandise inventory Fixed selling expense $ 29,000 Skipped $290,000 $ 14,500 eBook Fixed administrative $ 17,400 expense Variable selling expense Variable administrative $ 21,750 Print expense Contribution margin Net operating income $ 87,000 $ 26,100 References 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? Complete this question by entering your answers in the tabs below. Req 3 to Reg 6 Req 1 Req 2 Prepare a contribution format income statement. Todrick Company Contribution Format Income Statement Variable expenses: Fixed expenses: < Req 1 Req 2 >

Answer 1

1	Todrick Company
	Contribution Income statement
	Sales		$   4,35,000
Less:	Variable cost
	Cost of goods sold	$ 3,04,500
	Variable Selling Expense	$     21,750
	Variable Administrative Expenses	$     21,750	$   3,48,000
	Contribution margin		$       87,000
Less:	Fixed expenses
	Fixed Selling Expense	$     43,500
	Fixed Administrative Expenses	$     17,400	$       60,900
	Net operating Income		$       26,100
	Workings:
	Cost of goods sold =	Beginning inventory + Purchases - Ending Inventory
	=	$29000 + $290000 - $14500
	=	$ 3,04,500
2	Todrick Company
	Traditional Income statement
	Sales		$   4,35,000
Less:	Cost of goods sold		$   3,04,500
	Gross Profit		$   1,30,500
Less:	Selling and administrative expenses
	Selling Expense ($21750 + $43500)	$     65,250
	Advertising expense ($21750 + $17400)	$     39,150
			$   1,04,400
	Net operating Income		$       26,100
	Workings:
	Cost of goods sold =	Beginning inventory + Purchases - Ending Inventory
	=	$29000 + $290000 - $14500
	=	$ 3,04,500
3	Selling price per unit	=	Sales Value / Number of units sold
		=	$435000 / 1000 units
		=	$             435
4	Variable cost per unit	=	variable cost / Number of units sold
		=	$348000 / 1000 units
		=	$             348
5	Contribution margin per unit	=	Selling price per unit - Variable cost per unit
		=	$435 - $348
		=	$               87
6	Contribution Income Statement
	As results under both the methods is same but Contribution Income Statement gives reasonable allocation of cost.

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