Question

Problem 1-19 Traditional and Contribution Format Income Statements (L01-6] Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: $ 210,000 $ 14,000 $ 140,000 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 es eses es eses es eses es 8,400 10,500 42,000 12,600 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? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 to 5 Reg 6 Prepare a contribution format income statement. Todrick Company Contribution Format Income Statement Variable expenses: Fixed expenses: Reqi Req 2 >

Answer 1

1. Contribution format income statement

Sales		$210,000
Variable expenses:
Cost of goods sold(14,000+140,000-7,000)	$147,000
Variable selling	$10,500
Variable administrative	$10,500	($168,000)
Contribution		$42,000
Fixed expenses:
Fixed selling	$21,000
Fixed administrative	$8,400	($29,400)
Net operating income		$12,600

2. Traditional format income statement

Sales		$210,000
Cost of goods sold		($147,000)
Gross margin		$63,000
Selling and administrative:
Selling	$31,500
Administrative	$18,900	($50,400)
Net operating income		$12,600

3. Selling price per unit =$210,000/1000 =$210.

4. Variable cost per unit = Total variable cost/Quantity

= $168,000/1,000

=$168.

5. Contribution margin per unit = $42,000/1,000 =$42.

6. The contribution format income statement is better because, it shows directly the impact of each unit in contribution margin.

____×____

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