Question

The Alpine House, Inc., is a large retailer of snow skis. The company assembled the information shown below for the quarter ended March 31: Amount Total sales revenue A 1,125,000 Selling price per pair of skis pair of skis A 450 Variable selling expense per pair of skis 50 Variable administrative expense per pair of skis 16 A Total fixed selling expense 140,000 A Total fixed administrative expense expense 130,000 Beginning merchandise inventory 65,000 Ending merchandise inventory 105,000 Merchandise purchases 290,000 A Required: 1. Prepare a traditional income statement for the quarter ended March 31. 2. Prepare a contribution format income statement for the quarter ended March 31. 3. What was the contribution toward fixed expenses and profits for each pair of skis sold during the quarter?

Answer 1

1	Traditional income statement
	Sales		$1,125,000	No. of units sold = 1,125,000/450 = 2,500
	Less: Cost of Goods sold		$250,000	(65000+290000-105000)
	Gross Profit		$875,000
	Less: Marketing and administrative expenses(fixed and variable)		$435,000
	a) Variable selling expenses	$125,000		(2500*50)
	b) Variable admin expenses	$40,000		(2500*16)
	c) Fixed Selling expense	$140,000
	d) Fixed Admin expense	$130,000
	Net profit		$440,000
2	Contribution Format Income Statement
	Sales		$1,125,000
	Less: Variable Cost of Goods sold		$250,000	(65000+290000-105000)
	Gross contribution margin		$875,000
	Less : Variable marketing and admin expenses		$165,000
	a) Variable selling expenses	$125,000
	b) Variable admin expenses	$40,000
	Contribution Margin		$710,000
	Less: Fixed expenses(both manufacturing and non manufacturing)		$270,000
	a) Fixed Selling expense	$140,000
	b) Fixed Admin expense	$130,000
	Net Profit		$440,000
3	Contribution towards fixed expense	$270,000
	Contribution towards profit	$440,000

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