Question

PROBLEM 1-19 M1-19 Traditional and Contribution Format Income Statements LO1-6 Tedrick Company is a merchandiser that reported the following information based on 1,000 units sold: Traditio $300,000 $20,000 $200,000 $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....... $12,000 $15,000 $60,000 $18,000 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. 0. 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? Why? tintios of Direct and Indirect Costs L01-1, LO1-4

Answer 1

du rm - Sales Sol. (d) Todrick Company - Contribution format Income Statement - Particulars | Detail's Amount. $ 300,000 less: Variable Expenses. Cost of Good's Sould $213,000 Selling Expense $ 15,000 Administrative Expeuse $ 12,000 Total Variable Expenses | $ 40,000) - Couboibutina Mangin $ 60,000 lessi fixed Expenses. Selling Expenses $ 30,000 Administrative Expense $12.000 Total fixed Expenses $ (42,000) - Net Operating Income $18000

Sol, (2) Todrick Company - Traditional Income Statement Particulars Detail's I Amounta Sales $300,000 Cost of Goods Sold $(213,000) Gross Mangin $ 87,000 Selling and Administrative Expenses Administrative Expense $ 24,000 Selling Expense 1 $ 45,000 Total Selling and Aclministrative Expenses Nel Operating Income $ 69,000) $18.000 Ana GORGEOUSONS

sol. (3.) Calculation of Selling Price per Unit » - Saules Number of unit's sold - $300,000 1000 Vuile's : $300 per unit . Selling price per Unit = $300 Sol (4) - Calculation of Variable Cost Per United - To tad Variable Cost Number of Unit Sold $ 240,000 1000 units $240 per unit Variable Cast per unit & $240

whribution M Sol. (5) Calculation of Coutribution Mangin per United - Selling Price per vuit - Variable Cost per unit a $ 300 - $ 240 - $60 . Contribution Margin per unit = $60. Another Method. Contribution Margin Number of unit Sould $ 60,000 1000 Vuit's $ 60 per Unit Contribution. Margin per unit = $60 outrib

Sol. (6) Contribution Income Statement would be More useful to manager's in estimating how net operating income will change in responses to changes in Unit Sades.

Begining Inventory Working Note or 1. Cost of Goods sold :- $ 20,000 Add: - Purchases $ 200,000 - Total Inventory Available $220,000 less; Ending luventory $. (1,000) - Cost of Goodi Sold $213,000 2. Total Variable Cost :- - Sales a $300,000 less - Coutribution Margin $(60,000) Potad Variable cost $240,000

3. Variable Administrative Expense => * Total Variable Custs $240,000 lessi Cost of Goods Sold $(213,000) Tess in Variabile Selling cost $(15000) Variable Administrative Expense $12,000 4. Fixed Selling Expense > Total fixed Expense => - = Coulribution Margin - Net Operating profit $ 60,000 - $18,000 3 $ 42,000 Totaal fixed expenses = fixed Administrative Experiet fixed Selling Expense = $42.000 = $ 12000+fixed Selling Expense fixed Selling Expense = $42.000 – $12.000 = $30,000 Fixed Selling Expense = $30,000