Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,485 per unit and then sells them to retail customers for an average price of $2,300 each. The company’s selling and administrative costs for a typical month are presented below:
Costs | Cost Formula | |
Selling: | ||
Advertising | $ | 936 per month |
Sales salaries and commissions | $ | 4,783 per month, plus 5% of sales |
Delivery of pianos to customers | $ | 58 per piano sold |
Utilities | $ | 666 per month |
Depreciation of sales facilities | $ | 4,976 per month |
Administrative: | ||
Executive salaries | $ | 13,569 per month |
Insurance | $ | 682 per month |
Clerical | $ | 2,496 per month, plus $41 per piano sold |
Depreciation of office equipment | $ | 899 per month |
During August, Marwick’s Pianos, Inc., sold and delivered 60 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.
Answers :-
1- Traditional Format income statement
.
Marwick's Pianos | ||||
Traditional format Income statement | ||||
For the month of August | ||||
Sales (60 units X $2300) | $ 1,38,000 | |||
Less: | Cost of goods sold (60 units X $1485) | $ 89,100 | ||
Gross Profit | $ 48,900 | |||
Less: | Operating Expenses: | |||
Selling expenses: | ||||
Advertising | $ 936 | |||
Sales Salaries and commission ($1,38,000 X 5%) + $4783 | $ 11,683 | |||
Delivery of Pianos to customers(60 units X $58) | $ 3,480 | |||
Utilities | $ 666 | |||
Depreciation of sales facilities | $ 4,976 | |||
Administrative expenses: | ||||
Executive salaries | $ 13,569 | |||
Insurance | $ 682 | |||
Clerical (60 units X $41)+$2,496 | $ 4,956 | |||
Depreciation of office equipment | $ 899 | |||
Total operating expense | $ 41,847 | |||
Net Income | $ 7,053 |
.
2 - Contribution Format income statement
Marwick's Pianos | ||||
Contribution format Income statement | ||||
For the month of August | ||||
Per unit | Total | |||
Sales (60 units X $2300) | $ 2,300 | $ 1,38,000 | ||
Less: | Variable cost | |||
Cost of goods sold (60 units X $1485) | $ 1,485 | $ 89,100 | ||
Sales commission ($1,38,000 X 5%) | $ 115 | $ 6,900 | ||
Delivery of Pianos to customers(60 units X $58) | $ 58 | $ 3,480 | ||
Clerical (60 units X $41) | $ 41 | $ 2,460 | ||
Total Variable cost | $ 1,699 | $ 1,01,940 | ||
Contribution margin($2,300-$1699) | $ 601 | $ 36,060 | ||
Less: | Fixed cost | |||
Advertising | $ 936 | |||
Sales Salaries | $ 4,783 | |||
Utilities | $ 666 | |||
Depreciation of sales facilities | $ 4,976 | |||
Executive salaries | $ 13,569 | |||
Insurance | $ 682 | |||
Clerical | $ 2,496 | |||
Depreciation of office equipment | $ 899 | |||
Total Fixed cost | $ 29,007 | |||
Net Income | $ 7,053 |
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