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Home Entertainment is a small, family-owned business that purchases LCD televisions from a reputable manufacturer and sells them at the retail level. The televisions sell, on average, for $2,240 each. The average cost of a television from the manufacturer is $1,450.

Home Entertainment has always kept careful accounting records, and the costs that it incurs in a typical month are as follows:

Costs	Cost Formula
Selling:
Advertising	$	1,195	per month
Delivery of televisions	$	55	per television sold
Sales salaries and commissions	$	3,470	per month, plus 10% of sales
Utilities	$	524	per month
Depreciation of sales facilities	$	3,580	per month
Administrative:
Executive salaries	$	10,800	per month
Depreciation of office equipment	$	660	per month
Clerical	$	2,320	per month, plus $53 per television sold
Insurance	$	895	per month

During April, the company sold and delivered 241 televisions.

Required:

1. Prepare an income statement for April using the traditional format with costs organized by function.

2. Prepare an income statement for April, this time using the contribution format with costs organized by behaviour. Show costs and revenues on both a total and a per unit basis down through contribution margin.

3.	Not available in Connect.

Answer 1

Solution

HOME ENTERTAINMENT
Traditional Income Stetement
For the month ending April 30
Sales revenue		$     539,840.00
Less: Cost of Goods sold		$     349,450.00
Gross Profit		$     190,390.00
Selling and Administrative Expenes
Selling Expenses
Advertising	$          1,195.00
Sales salaries and Commission	$       57,454.00
Delivery Expense	$       13,255.00
Utilities	$             524.00
Depreciation of sales facility	$          3,580.00
Total Selling Expenses	$       76,008.00
Administrative Expenses
Executive Salaries	$       10,800.00
Insurance	$             895.00
Clerical	$       15,093.00
Depreciation- Office Equipment	$             660.00
Total Administrative expenses	$       27,448.00
Total Selling and Administrative Expense		$     103,456.00
Net income		$       86,934.00

..

HOME ENTERTAINMENT
Contribution formal Income statement
For the month ending April 30
	Total	Per Piano
Sales	$     539,840.00	$         2,240.00
variable Expenses
Direct material cost	$     349,450.00	$         1,450.00
Variable Sales salaries and Commission	$       53,984.00	$             224.00
Delivery Expenses	$       13,255.00	$               55.00
Clerical	$       12,773.00	$               53.00
Total Variable Cost	$     429,462.00	$         1,782.00
Contribution Margin	$     110,378.00	$             458.00
Fixed costs
Advertising	$          1,195.00
Fixed Sales salaries and Commission	$          3,470.00
Utilities	$             524.00
Depreciation- Sales Facility	$             660.00
Executive salaries	$       10,800.00
Insurance	$             895.00
Clerical fixed cost	$          2,320.00
Depreciation- Office equipment	$          3,580.00
Total Fixed cost	$       23,444.00
Net Income	$       86,934.00