Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: 10 points $ 435,000 $ 29,000 $ 290,000 $ 14,500 Sales Beginning merchandise inventory Purchases Ending merchandise inventory Fixed selling expense Fixed administrative expense Variable selling expense Variable administrative expense Contribution margin Net operating income 17,400 21,750 eBook $ 87,000 26,100 Print 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?

Answer 1

435000 Requirement: 1 Todrick Company Contribution Format Income Statement Sales Variable expenses: Cost of goods sold 304500 Selling expense 21750 Administrative expense 21750 348000 87000 Total variable expenses Contribution margin Fixed expenses: Selling expense Administrative expense 43500 17400 Total fixed expenses Net Operating income 60900 26100

Requirement: 2 Todrick Company Traditional Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Administrative expense 435000 304500 130500 65250 39150 Total selling and administrative expenses Net operating income 104400 26100 Requirement: 3 Selling price per unit = Sales / Units sold Sales Units sold Selling price per unit 435000 1000 435 Requirement: 4 Variable cost per unit = Total variable cost/Units Total variable cost 348000 units 1000 Variable cost per unit 348

Requirement: 5 Contribution margin per unit = Contribution margin / units sold Contribution margin 87000 Units sold 1000 Contribution margin per unit 87 Requirement: 6 Contribution Format income statement is more useful to managers in estimating the net operating income and deterimining changes in profit according to changes in sales volume

Working notes: Beginning merchandise inventory Add: Purchases Less: Ending merchandise inventory Cost of goods sold 29000 290000 14500 304500 Sales Less: Cost of goods sold Less: Variable selling expense Less: Contribution margin Variable administrative expense 435000 3045001 21750 87000 21750 Contribution margin Fixed administrative expenses Net operating income Fixed selling expense 87000 17400 26100 43500