Question

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 $1,480 per unit and then sells them to retail customers for an average price of $2,900 each. The company’s selling and administrative costs for a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$	948 per month
Sales salaries and commissions	$	4,830 per month, plus 5% of sales
Delivery of pianos to customers	$	61 per piano sold
Utilities	$	652 per month
Depreciation of sales facilities	$	5,075 per month
Administrative:
Executive salaries	$	13,584 per month
Insurance	$	709 per month
Clerical	$	2,545 per month, plus $39 per piano sold
Depreciation of office equipment	$	917 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

req1 B F HIJ K req 1 req 2 $ 1,76,900 $ 90,280 $ 86,620 Marwick's Pianos, Inc. Traditional Income Statement For the Month of August sales revenue purchase cost gross profit selling and administrative expenses selling expenses advertising $ 948 sales salaries and commissions $ 13,675 delivery expenses $3,721 utilities $ 652 depreciation of sales facilities $5,075 total selling expenses $ 24,071 administrative expenses executive salaries $ 13,584 insurance expense $ 709 clerical expense $4,924 depreciation of office equipment $ 917 total administrative expenses $ 20,134 total selling and administrative expenses net operating income Marwick's Pianos, Inc. Contribution Format Income Statement For the Month of August total per piano sales revenue $ 1,76,900 $ 2,900 variable expenses: purchase cost $ 90,280 $ 1,480 sales salaries and commissions $ 8,845 $ 145 delivery expenses $ 3,721 $61 clerical expense $ 2,379 $ 39 total variable expenses $ 1,05,225 $ 1,725 contribution margin $ 71,675 $ 1,175 fixed expenses: advertising $ 948 sales salaries and commissions $ 4,830 utilities $ 652 depreciation of sales facilities $5,075 executive salaries $ 13,584 insurance expense $ 709 clerical expense $ 2,545 depreciation of office equipment $ 917 total fixed expenses $ 29,260 net operating income $ 42,415 $ 44,205 $ 42,415

For formulas and calculations, refer to the image below -

X fic req1 B E F req 1 reg 2 =2900*61 =1480*61 =E5-E6 61 Marwick's Pianos, Inc. Traditional Income Statement For the Month of August sales revenue purchase cost gross profit selling and administrative expenses selling expenses advertising 948 sales salaries and commissions =4830+(E5*5%) delivery expenses =61*61 utilities =652 depreciation of sales facilities =5075 total selling expenses =SUM(D10:014) administrative expenses executive salaries 13584 insurance expense 709 clerical expense =2545+(39*61) depreciation of office equipment 917 total administrative expenses =SUM(D17:020) total selling and administrative expenses net operating income Marwick's Pianos, Inc. Contribution Format Income Statement For the Month of August total per piano sales revenue =J6*61 2900 variable expenses: purchase cost =8*61 1480 sales salaries and commissions =16*5% =J6*5% delivery expenses =J10*61 clerical expense =J11*61 total variable expenses =SUM(18:111) |=SUM(J8:J11) contribution margin =16-112 =J6-J12 fixed expenses: advertising 948 sales salaries and commissions 4830 utilities 652 depreciation of sales facilities 5075 executive salaries 13584 insurance expense 709 clerical expense 2545 depreciation of office equipment 917 total fixed expenses =SUM(115:122) net operating income =113-123 =D15+D21 =E7-E22

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