Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold:

$ 210,000 $ 14,000 $ 140,000 $ 7,000 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 $ 8,400 $ 10,500 $ 42,000 $ 12,600 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

Part. 1

Contribution Format Income Statement
Sales	(A)	210000
Variable Cost
Cost of Goods Sold
Opening Material	14000
Purchases	140000
Closing Material	-7000	147000
Variable Administrative Expense*		10500
Variable Selling Expense		10500
Total Variable Cost	(B)	168000
Contribution	(C ) = (A)-(B)	42000
Fixed Cost
Fixed Administrative Expense		8400
Fixed Selling Expense**		21000
Total Fixed Cost	(D)	29400
Net Income	(E ) = (C)-(D)	12600
Variable Administrative Expense* = Sales - Cost of Goods Sold - Variable Selling Expenses - Contribution = (210000-147000-10500-42000) = 10500
Fixed Selling Expense** = Contribution - Fixed Administrative Expenses - Net Income = (42000-8400-12600) = 21000

Part 2

	Traditional Format Income Statement
	Sales		210000
Less	Cost of Goods Sold
	Opening Material	14000
	Purchases	140000
	Closing Material	-7000	(147000)
Less	Administrative Expenses
	Variable Administrative Expense*		(10500)
	Fixed Administrative Expense		(8400)
Less	Selling Expenses
	Variable Selling Expense		(10500)
	Fixed Selling Expense*		(21000)
	Net Income		12600

Part 3

Selling cost per unit	= Sales/ Number of units			=$210000/1000
				$ 210.00

Part 4

Variable Cost per unit	= Total Variable Cost/ Number of units
	=$ 168000/1000		$ 168.00