Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: $ 345,000 $ 23,000 $ 230, eee $ 11.5e 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 13. see 17,258 69. eee 20.700 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?

Answer 1

345000 Requirement 1: Todrick Company Contribution Format Income Statement Sales Variable Expenses: Cost of goods Sold 241500 Variable selling Expenses 17250 Variable Administrative Expenses L 17250 Contribution Margin Fixed expenses: Fixed Selling Expenses 34500 Fixed Administrative Expenses 13800 Net Operating Income 276000 (Total Variable Exp. = Sales - Contribution Margin) 69000 (Sales - Total Variable Exp.) 48300 (Total Fixed expenses = Contribution Margin - Net Operating Income) 20700 (Contibution Margin-Total Fixed Expenses) Requirement 2: Todrick Company Treditional Income Statement Sales Cost of goods Sold Gross margin Sellimg and Administrative expenses: Selling 51750 Administrative 31050 Net operating Income 345000 241500 103500 82800 20700

Requirement 3: Sales Number of Units Selling Price per Unit $345,000 1000 $ 345 (Sales/Number of Units) Requirement 4: Total variable Cost Number of Units Variable Cost per Unit $276,000 1000 $276 (Total variable Cost/Number of Units) Requirement 5: Contribution Margin Number of Units Contribution margin per Unit $69,000 1000 $69 (Contribution Margin/Number of Units) Requirement 6: The Contribution format is more useful because it organizes costs based on their cost behaviour. The Contribution format enables manages to quickly calculate how variable costs will change.