Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: 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 $ 375,000 $ 25,000 $ 250,000 $ 12,500 ? $ 15,000 $ 18,750 $ $ $ 75,000 22,500 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

375000 Requirement: 1 Todrick Company Contribution Format Income Statement Sales Variable expenses: Cost of goods sold 262500 Selling expense 18750 Administrative expense 18750 300000 75000 Total variable expenses Contribution margin Fixed expenses: Selling expense Administrative expense 37500 15000 Total fixed expenses Net Operating income 52500 22500

Requirement: 2 Todrick Company Traditional Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Administrative expense 375000 262500 112500 56250 33750 Total selling and administrative expenses Net operating income 90000 22500 Requirement: 3 Selling price per unit = Sales / Units sold Sales Units sold Selling price per unit 375000 1000 375 Requirement: 4 Variable cost per unit = Total variable cost/Units Total variable cost 300000 units 1000 Variable cost per unit 300

Requirement: 5 Contribution margin per unit = Contribution margin / units sold Contribution margin 75000 Units sold 1000 Contribution margin per unit Requirement: 6 Contribution Format income statement is more useful to managers in estimating the net operating income and deterimining changes in profit according to changes in sales volume

Working notes: Beginning merchandise inventory Add: Purchases Less: Ending merchandise inventory Cost of goods sold 25000 250000 12500 262500 Sales Less: Cost of goods sold Less: Variable selling expense Less: Contribution margin Variable administrative expense 375000 262500 18750 75000 18750 Contribution margin Fixed administrative expenses Net operating income Fixed selling expense 75000 15000 22500 37500