Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,511 per unit and then sells them to retail customers for an average price of $2,400 each. The company’s selling and administrative costs for a typical month are presented below: Costs Cost Formula Selling: Advertising $ 957 per month Sales salaries and commissions $ 4,801 per month, plus 3% of sales Delivery of pianos to customers $ 60 per piano sold Utilities $ 633 per month Depreciation of sales facilities $ 4,924 per month Administrative: Executive salaries $ 13,566 per month Insurance $ 686 per month Clerical $ 2,488 per month, plus $40 per piano sold Depreciation of office equipment $ 859 per month During August, Marwick’s Pianos, Inc., sold and delivered 57 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

Solution:

Marwick's piano, inc.

Traditional income statement

For the month of August

Sales		$136,800
Cost of goods sold		$86,127
Gross margin		$50,673
Selling and administrative expenses:
Selling expenses:
Advertising	$957
Sales salaries and commissions	$8,905
Delivery of piano	$3,420
Utilities	$633
Depreciation of sales facilities	$4,924
Total selling expenses	$18,839
Administrative expenses:
Executive salaries	$13,566
Insurance	$686
Clerical	$4,768
Depreciation of office equipment	$859
Total administrative expenses	$19,879
Total selling and administrative expenses	$38,718
Net operating income		$11,955

Explanation:

Sales: (57 pianos × $2,400) = $136,800

Cost of goods sold:(57 pianos × $1,511) = $86,127

Sales salaries and commission: [$4801 +(3% ×136,800) ] =[$4801 + $4104]

=$8,905

Delivery of pianos:( 57 pianos × $60 per piano) = $3,420

Clerical: [$2488 +(57 pianos × $40) ]

=$2488 +$2280 =$4,768

2.)

Marwick's pianos, inc.

Contribution format Income Statement

For the month of August

	Total	Per Piano
Sales	$136,800	$2,400
Variable expenses:
Sales salaries and commissions	$4,104	$72(4104/57)
Delivery of pianos	$3,420	$60
Clerical	$2,280	$40
Cost of goods sold	$86,127	$1,511
Total variable expenses	$95,931	$1,683
Contribution margin	$40,869	$717
Fixed expenses:
Advertising	$957
Sales salaries and commissions	$4,801
Utilities	$633
Depreciation of office equipment	$859
Depreciation of sales facilities	$4,924
Executive salaries	$13,566
Insurance	$686
Clerical	$2,488
Total fixed expenses	$28,914
Net operating income	$11,955

Explanation:

Sales: (57 pianos × $2400) =$136,800

Cost of goods sold: (57 pianos × $1511) = $86,127

Sales salaries and commission: (3% ×$136800) = $4,104

Delivery of pianos (57 pianos × $60) =$3,420

Clerical: (57 pianos × $40)

=$2,280