Question

Marwick's Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,510 per unit and then sells them to retail customers for an average price of $2,700 each. The company's selling and administrative costs for a typical month are presented below: Cost Formula Costs Selling: Advertising Sales salaries and commissions Delivery of pianos to customers Utilities Depreciation of sales facilities Administrative: Executive salaries Insurance Clerical Depreciation of office equipment $967 per month $4,805 per month, plus 6% of sales $60 per piano sold $659 per month $5,059 per month $13,531 per month $686 per month $2,548 per month, plus $38 per piano sold $923 per month During August, Marwick's Pianos, Inc., sold and delivered 58 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.

Answer 1

Solution 1:

Traditional Income Statement - Marwick Pianos Inc.
Particulars	Details	Amount
Sales ($2,700*58)		$156,600.00
Less: Cost of Goods Sold (1510*58)		$87,580.00
Gross Profit		$69,020.00
Sellling Expenses:
Advertising	$967.00
Sales Salaries and Commissions (4805 + 6% of 156600)	$14,201.00
Delivery of Pianos to customers (60*58)	$3,480.00
Utilities	$659.00
Depreciation of Sales Facilities	$5,059.00	$24,366.00
Administrative Expenses:
Executive Salaries	$13,531.00
Insurance	$686.00
Clerical (2548 + 38*58)	$4,752.00
Depreciation of office equipment	$923.00	$19,892.00
Net Income		$24,762.00

Solution 2:

Contribution margin Income Statement - Marwick Pianos Inc.
Particulars	Per Unit	Total
Sales	$2,700.00	$156,600.00
Variable Cost:
Purchase Cost	$1,510.00	$87,580.00
Sales Commission	$162.00	$9,396.00
Delivery of Pianos to customers	$60.00	$3,480.00
Clerical Expense	$38.00	$2,204.00
Contribution	$930.00	$53,940.00
Fixed Cost:
Advertising		$967.00
Sales Salaries		$4,805.00
Utilities		$659.00
Depreciation of Sales Facilities		$5,059.00
Executive Salaries		$13,531.00
Insurance		$686.00
Clerical		$2,548.00
Depreciation of office equipment		$923.00
Net Income		$24,762.00