Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,496 per unit and then sells them to retail customers for an average price of $2,000 each. The company’s selling and administrative costs for a typical month are presented below:
Costs | Cost Formula | |
Selling: | ||
Advertising | $ | 963 per month |
Sales salaries and commissions | $ | 4,807 per month, plus 4% of sales |
Delivery of pianos to customers | $ | 63 per piano sold |
Utilities | $ | 635 per month |
Depreciation of sales facilities | $ | 5,051 per month |
Administrative: | ||
Executive salaries | $ | 13,522 per month |
Insurance | $ | 680 per month |
Clerical | $ | 2,545 per month, plus $42 per piano sold |
Depreciation of office equipment | $ | 878 per month |
During August, Marwick’s Pianos, Inc., sold and delivered 57 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.
1.
Marwick's Pianos, Inc., Income Statement For The Month Ended August |
||
Sales (57*$2,000) | $114,000 | |
Cost of goods sold (57*$1,496) | 85,272 | |
Gross profit | 28,728 | |
Selling and administrative expenses: | ||
Advertising | $963 | |
Sales salaries and commission ($4,807+114,000*4%) | 9,367 | |
Delivery of pianos to customers (57*$63) | 3,591 | |
Depreciation of sales facilities | 5,051 | |
Utilities | 635 | |
Executive salaries | 13,522 | |
Insurance | 680 | |
Clerical (2,545+57*$42) | 4,939 | |
Depreciation of office equipment | 878 | |
Total | 39,626 | |
Net income (loss) | $(10,898) |
2.
Marwick's Pianos, Inc., Income Statement For The Month Ended August |
||
Sales | $114,000 | $2,000 |
Variable costs: | ||
Cost of goods sold | 85,272 | 1,496 |
Sales salaries and commission (114,000*4%) | 4,560 | 80 |
Delivery of pianos to customers | 3,591 | 63 |
Clerical | 2,394 | 42 |
Total variable costs | 95,817 | 1,681 |
Contribution margin | 18,183 | 319 |
Fixed costs: | ||
Advertising | 963 | |
Sales salaries and commission | 4,807 | |
Utilities | 635 | |
Depreciation of sales facilities | 5,051 | |
Executive salaries | 13,522 | |
Insurance | 680 | |
Clerical | 2,545 | |
Depreciation of office equipment | 878 | |
Total fixed costs | 29,081 | |
Net income (loss) | $(10,898) |
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