Question

PROBLEM 1-19 Traditional and Contribution Format Income Statements LO1-60 Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: Page 57 $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. 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? Why?

Answer 1

Contribution format income statement
Sales	300,000
Variable expenses	240,000
Contribution margin	60,000
Fixed expenses	42,000
Net operating income	18,000
Traditional Income Statement
Sales	300,000
Cost of Goods sold	213000
Gross Margin	87,000
Selling and Admin Expenses	69,000
Net operating Income	18000
3.Selling price per unit	300
Variable cost per unit	240
Contribution Margin per Unit	60
Contribution Margin income statement is more useful as fixed costs do not change when sales units change within the relevant range

А В 1 Contribution format income sta 2 Sales 300000 3 Variable expenses =B2-B4 4. Contribution margin 60000 5 Fixed expenses =B4-B6 6 Net operating income 18000 7 8 Traditional Income Statement 9 Sales =B2 10 Cost of Goods sold =20000+200000-7000 11 Gross Margin =B9-B10 12 Selling and Admin Expenses =B11-B13 13 Net operating Income 18000 14 15 3.Selling price per unit =B2/1000 16 Variable cost per unit =B3/1000 17 Contribution Margin per Unit =B15-B16 18 19 Contribution Margin income sta