Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,504 per unit and then sells them to retail customers for an average price of $3,500 each. The company’s selling and administrative costs for a typical month are presented below:
Costs | Cost Formula | |
Selling: | ||
Advertising | $ | 963 per month |
Sales salaries and commissions | $ | 4,826 per month, plus 4% of sales |
Delivery of pianos to customers | $ | 62 per piano sold |
Utilities | $ | 651 per month |
Depreciation of sales facilities | $ | 5,078 per month |
Administrative: | ||
Executive salaries | $ | 13,421 per month |
Insurance | $ | 692 per month |
Clerical | $ | 2,528 per month, plus $42 per piano sold |
Depreciation of office equipment | $ | 862 per month |
During August, Marwick’s Pianos, Inc., sold and delivered 62 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.
Solution
Marwick's Pianos Inc | ||
Traditional Income Stetement | ||
For the Month of August | ||
Sales revenue | $ 2,17,000.00 | |
Less: Cost of Goods sold | $ 93,248.00 | |
Gross Profit | $ 1,23,752.00 | |
Selling and Administrative Expenese | ||
Selling Expenses | ||
Advertising | $ 963.00 | |
Sales salaries and Commission | $ 13,506.00 | |
Delivey Expense | $ 3,844.00 | |
Utilities | $ 651.00 | |
Depreciation of sales facility | $ 5,078.00 | |
Total Selling Expenses | $ 24,042.00 | |
Administrative Expenses | ||
Executive Salaries | $ 13,421.00 | |
Insurance | $ 692.00 | |
Clerical | $ 5,132.00 | |
Depreciation- Office Equipment | $ 862.00 | |
Total Administrative expenses | $ 20,107.00 | |
Total Selling and Administrative Expense | $ 44,149.00 | |
Net income | $ 79,603.00 |
.
Marwick's Pianos Inc | ||
Contribution formal Income statement | ||
For the Month of August | ||
Total | Per Piano | |
Sales | $ 2,17,000.00 | $ 3,500.00 |
variable Expenses | ||
Direct material cost | $ 93,248.00 | $ 1,504.00 |
Variable Sales salaries and Commission | $ 8,680.00 | $ 140.00 |
Delivery Expenses | $ 3,844.00 | $ 62.00 |
Clerical | $ 2,604.00 | $ 42.00 |
Total Variable Cost | $ 1,08,376.00 | $ 1,748.00 |
Contribution Margin | $ 1,08,624.00 | $ 1,752.00 |
Fixed costs | ||
Advertising | $ 963.00 | |
Fixed Sales salaries and Commission | $ 4,826.00 | |
Utilities | $ 651.00 | |
Depreciation- Sales Facility | $ 5,078.00 | |
Executive salaries | $ 13,421.00 | |
Insurance | $ 692.00 | |
Clerical fixed cost | $ 2,528.00 | |
Depreciation- Office equipment | $ 862.00 | |
Total Fixed cost | $ 29,021.00 | |
Net Income | $ 79,603.00 |
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