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 $ 300,000 $ 20,000 $ 200,000 $ 7. eee $ $ 12.000 $ 15,000 $ 7 $ 60,000 $ 18,000 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

1)

Todrick Company
Contribution Format Income Statement
Sales		$300000
Less: Variable expenses
Cost of goods sold	213000
Variable selling expense	15000
Variable administrative expense	12000
Total variable expenses		240000
Contribution margin		60000
Less: Fixed expenses
Fixed selling expense	30000
Fixed administrative expense	12000
Total fixed expenses		42000
Net operating income		$18000

Cost of goods sold= Beginning merchandise inventory+Purchases-Ending merchandise inventory

= $20000+200000-7000= $213000

Total fixed expense= Contribution margin-Net operating income

= 60000-18000= $42000

Fixed selling expense= Total fixed expense-Fixed administrative expense

= $42000-12000= $30000

Total variable expenses= Sales-Contribution margin

= $300000-60000= $240000

Variable administrative expense= Total variable expenses-Cost of goods sold-Variable selling expense

= $240000-213000-15000= $12000

2)

Todrick Company
Traditional Format Income Statement
Sales		$300000
Less: Cost of goods sold		213000
Gross profit		87000
Less: Selling and administrative expenses
Selling expense (15000+30000)	45000
Administrative expense (12000+12000)	24000	69000
Net operating income		$18000

3) Selling price per unit= $300000/1000= $300 per unit

4) Variable cost per unit= $240000/1000= $240 per unit

5) Contribution margin= $60000/1000= $60 per unit

6) Contribution format income statement would be more useful in estimating how net operating income will change in response to change in unit sales. As we know fixed costs will not changed with the changed in unit sales. There will only be changed in variable expense when there is change in unit sales. So, Contribution format income statement would be more useful.

NOTE:- For any problem regarding the answer please ask in the comment section.