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 $1,512 per unit and then sells them to retail customers for an average price of $2,600 each. The company's selling and administrative costs for a typical month are presented below: Cost Formula Costs Selling: Advertising Sales salaries and commissions Delivery of pianos to customers Utilities Depreciation of sales facilities $951 per month $4,780 per month, plus 6% of sales $61 per piano sold $657 per month $5,081 per month Administrative Executive salaries Insurance Clerical Depreciation of office equipment $13,471 per month $708 per month $2,502 per month, plus $41 per piano sold $944 per month During August, Marwick's Pianos, Inc., sold and delivered 61 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

Marwick's Pianos , Inc.
Tradittional Income statement
For the month of August
Sales	$           1,58,600
Less: Cost of Purhcase	$              92,232
Gross Revenue		$                66,368
Less: Selling and adminsitrative Expenses
Selling Expenses
Sales , Salaries and commission - Fixed	$                 4,780
Sales , Salaries and commission - Variable (6 % of $ 158,600)	$                 9,516
Delivary expenses (61 X$ 61)	$                 3,721
Utilities	$                    657
Depreciation of sales facilities	$                 5,081
Total Selling Expenses		$                23,755
Adminsitrative Expenses
Advertising	$                    951
Executive Salaries	$              13,471
Insurance Expenses	$                    708
Clerical - Fixed	$                 2,502
Clerical - Variable (41 X $ 61)	$                 2,501
Depreciation of office equipment	$                    944
Total Administrative expenses		$                21,077
Total Selling and administrative expenses		$                44,832
Net Income		$                21,536
Marwick's Pianos , Inc.
Contribution Income statement
For the month of August
	Total	Per Piano
Sales	$           1,58,600	$                   2,600
Variable Expenses
Less: Cost of Purhcase	$              92,232	$                   1,512
Sales , Salaries and commission - Variable (6 % of $ 158,600)	$                 9,516	$                      156
Delivary expenses (61 X$ 61)	$                 3,721	$                         61
Clerical - Variable (41 X $ 61)	$                 2,501	$                         41
Total Variable Expenses	$           1,07,970	$                   1,770
Contribution Margin	$              50,630	$                      830
Fixed Expenses
Sales , Salaries and commission - Fixed	$                 4,780	$                         78
Utilities	$                    657	$                         11
Depreciation of sales facilities	$                 5,081	$                         83
Advertising	$                    951	$                         16
Executive Salaries	$              13,471	$                      221
Insurance Expenses	$                    708	$                         12
Clerical - Fixed	$                 2,502	$                         41
Depreciation of office equipment	$                    944	$                         15
Total Fixed Expenses	$              29,094	$                      477
Net Income	$              21,536	$                      353