Question

Anment 1 ) - Protected V Saved to this PC Search BERLANDE DELPE mations Slide Show Review View Help ses. Unless you need to edit ale to stay in Proded view Enable ning Guided Example su conne Maui Mike's is a large retailer of surfboards. The company assembled the information shown below for the quarter ended May 31: Amount Total sales revenue $750,000 Selling price per unit $500 Variable selling expense per unit $40 Variable administrative expense per unit $15 Total fixed selling expense $125,000 Total fixed administrative expense $100,000 Merchandise inventory, beginning balance $65,000 Merchandise inventory, ending balance $85,000 Merchandise purchases $295,000 Required: 1. Prepare a traditional income statement for the quarter ended May 31. 2. Prepare a contribution format income statement for the quarter ended May 31. 3. What was the contribution toward fixed expenses and profits for each surfboard sold during the quarter? (State this figure in a single dollar amount per surfboard.) [106]

Answer 1

1.

Traditional Income Statement
Sales		750,000
Cost of goods sold		275,000
Gross Margin		475,000
Selling and administrative expenses
Variable selling expenses	60000
Variable administrative expenses	22500
Fixed selling expense	125,000
Fixed administrative expenses	100,000
Total selling and administrative expenses		307500
Net Income		167,500

2.

Contribution Format Income Statement
Sales		750,000
Variable expenses
Cost of goods sold	275,000
Variable selling expenses	60000
Variable administrative expenses	22500
Total variable expenses		357,500
Contribution Margin		392,500
Fixed Expenses
Fixed selling expense	125,000
Fixed administrative expenses	100,000
Total fixed Expenses		225,000
Net Income		167,500

3. Contribution toward fixed expenses and profits = 392,500 / 1500 = 262

Workings:

1. No of units sold = 750000/500 = 1500

2. Variable selling expenses = 1500 *40 = 60,000

3. Variable administrative expenses = 1500 * 15 = 22500

4.

Merchandise inventory, beginning balance	65,000
Add: Merchandise purchases	295,000
Less: Merchandise inventory, ending balance	85,000
Cost of goods sold	275,000