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 $ 405,000 $ 27,000 $ 270,000 $ 13,500 $ ? $ 16,200 $ 20,250 $ ? $ 81,000 $ 24,300 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

Answer 1.

405,000 Todrick Company Contribution Format Income Statement Sales $ Variable expenses Cost of goods sold $ 283,500 Selling expense $ 20,250 Administrative expense $ 20,250 $ Contribution margin $ Fixed expenses: Selling expense 40,500 Administrative expense $ 16,200 $ Net operating income $ 324,000 81,000 56,700 24,300

Cost of goods sold = Beginning merchandise inventory + Purchases - Ending merchandise inventory
Cost of goods sold = $27,000 + $270,000 - $13,500
Cost of goods sold = $283,500

Contribution margin = Sales - Cost of goods sold - Variable selling expense - Variable administrative expense
$81,000 = $405,000 - $283,500 - $20,250 - Variable administrative expense
Variable administrative expense = $20,250

Net operating income = Contribution margin - Fixed selling expense - Fixed administrative expense
$24,300 = $81,000 - Fixed selling expense - $16,200
Fixed selling expense = $40,500

Answer 2.

Todrick Company Traditional Income Statement Sales Cost of goods sold Gross margin Selling and administrative expense Selling expense $ 60,750 Administrative expense $ 36,450 $ $ $ 405,000 283,500 121,500 97,200 24,300 Net operating income $

Answer 3.

Selling price per unit = Sales / Units sold
Selling price per unit = $405,000 / 1,000
Selling price per unit = $405.00

Answer 4.

Variable cost per unit = Variable expense / Units sold
Variable cost per unit = $324,000 / 1,000
Variable cost per unit = $324.00

Answer 5.

Contribution Margin per unit = Selling price per unit - Variable cost per unit
Contribution Margin per unit = $405.00 - $324.00
Contribution Margin per unit = $81.00

Answer 6.

Contribution format income statement would be more useful to managers in estimating change in net operating income in responses to change in unit sales.