Question

Marwick's Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,504 per unit and then sells them to retail customers for an average price of $2.400 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 $969 per month $4,795 per month, plus 5% of sales $57 per piano sold $640 per month $5,069 per month Administrative: $13,507 per month $694 per month $2,541 per month, plus $39 per piano sold $937 per month Executive salaries Insurance Clerical Depreciation of office equipment During August, Marwick's Pianos, Inc., sold and delivered 62 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

1. Traditional income statement for the month of august :

Sales [ 62 pianos * $2,400 ]		$148,800
(-) Cost of goods sold [ 62 pianos * $1,504 ]		( $93,248 )
Gross profit (A)		$55,552
Selling and administrative expenses :
Selling expenses :
Advertising	$969
Sales salaries and commission [ $4,795 + ( 5% * $148,800 ) ]	$12,235
Delivery of pianos to customers [ $57 * 62 pianos ]	$3,534
Utilities	$640
Depreciation of sales facilities	$5,069
Total selling expenses		$22,447
Administrative expenses :
Executive salaries	$13,507
Insurance	$694
Clerical [ $2,541 + ( 62 pianos * $39 ) ]	$4,959
Depreciation of office equipment	$937
Total administrative expenses		$20,097
Total selling and administrative expenses (B)		$42,544
Net operating income (A-B)		$13,008

2. Contribution format income statement for the month of august :

	Total	Per piano [ Total / 62 ]
Sales [ 62 pianos * $2,400 ] (A)	$148,800	$2,400
Variable expenses :
Cost of goods sold [ 62 pianos * $1,504 ]	$93,248	$1,504
Sales commission [ 5% * $148,800 ]	$7,440	$120
Delivery of pianos to customers [ $57 * 62 pianos ]	$3,534	$57
Clerical [ $39 * 62 pianos ]	$2,418	$39
Total variable expenses (B)	$106,640	$1,720
Contribution margin (C) (A-B)	$42,160	$680
Fixed expenses :
Advertising	$969
Sales salaries	$4,795
Utilities	$640
Depreciation of sales facilities	$5,069
Executive salaries	$13,507
Insurance	$694
Clerical	$2,541
Depreciation of office equipment	$937
Total fixed expenses (D)	$29,152
Net operating income (C-D)	$13,008