Question

Problem 1-21 Traditional and Contribution Format Income Statements [LO1-6]

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,488 per unit and then sells them to retail customers for an average price of $2,700 each. The company’s selling and administrative costs for a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$	952 per month
Sales salaries and commissions	$	4,824 per month, plus 4% of sales
Delivery of pianos to customers	$	58 per piano sold
Utilities	$	662 per month
Depreciation of sales facilities	$	4,929 per month
Administrative:
Executive salaries	$	13,455 per month
Insurance	$	697 per month
Clerical	$	2,464 per month, plus $43 per piano sold
Depreciation of office equipment	$	903 per month

During August, Marwick’s Pianos, Inc., sold and delivered 56 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.

repare a traditional format income statement for August. (A "Net operating loss" should be entered as a negative number.)

Marwick's Pianos, Inc. Traditional Income Statement For the Month of August Sales $ Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses: Advertising Sales salaries and commissions Utilities Depreciation of sales facilities Delivery of pianos Total selling expenses 0 Administrative expenses: Insurance Executive salaries Depreciation of office equipment Clerical Total administrative expenses 0 Total selling and administrative expenses 0 Net operating income $

• 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. (A "Net operating loss" should be entered as a negative number.)

  Marwick's Pianos, Inc. Contribution Format Income Statement For the Month of August Total Per Piano Sales Variable expenses: Clerical Sales salaries and commissions Delivery of pianos Cost of goods sold Total variable expenses 0 0 Contribution margin Fixed expenses: Advertising Depreciation of sales facilities Utilities Executive salaries Insurance Depreciation of office equipment Clerical Sales salaries and commissions Total fixed expenses 0 Net operating income

Answer 1

	Marwick's Pianos Inc.
	Traditional Income Statement
	For the Month of August
	Sales		151200		2700*56
	Less: COGS		83328		1488*56
	Gross Margin		67872
	Selling & Administrative Ex:
	Selling Expenses:
	Advertising	952
	Sales Salaries and Commission	10872			4824+4%(151200)
	Utilities	662
	Depreciation of Sales Facilities	4929
	Delivery of Pianos	3248			58*56
	Total Selling Expense	20663
	Administrative Expense:
	Insurance	697
	Executive Salaries	13455
	Depreciation of Office Equipment	903
	Clerical	4872			2464+(43*56)
	Total Administrative Expense	19927
	Total Selling & Admin Expense		40590
	Net Operating Income		27282
	Marwick's Pianos Inc.
	Contribution Margin Income Statement
	For the Month of August
		Total	Per Piano
	Sales	151200	2700
	Variable Expense:
	Clercial	2408	43.00		56*43
	Sales Salaries and Commission	6048	108.00		4% of 151200
	Delivery of Pianos	3248	58.00		56*58
	Cost of Goods Sold	83328	1,488.00		56*1488
	Total Variable Expense	95032	1,697
	Contribution Margin	56168	1003
	Fixed Expenses:
	Adversting	952
	Depreciation of Sales Facilities	4929
	Utilities	662
	Executive Salaries	13455
	Insurance	697
	Depreciation of Office Equipment	903
	Clerical	2464
	Sales Salaries and Commission	4824
	Total Fixed Expense	28886
	Net Operating Income	27282