Question

Fanelli Corporation, a merchandising company, reported the following results for July:

Number of units sold		5,700
Selling price per unit	$	600
Unit cost of goods sold	$	409
Variable selling expense per unit	$	64
Total fixed selling expense	$	125,200
Variable administrative expense per unit	$	20
Total fixed administrative expense	$	207,100

Cost of goods sold is a variable cost in this company.

Required:

a. Prepare a traditional format income statement for July.

b. Prepare a contribution format income statement for July.

Fanelli Corporation For the month of July Traditional Income Statement 0 Selling and administrative expenses: 0 $ 0

Answer 1

Answer

a Fanelli Corporation

For the month of July

Traditional income statement

Particulars	$	$
Revenue:
Sales (5,700 × 600)		3,420,000
Less Cost of goods sold (5,700 × 409)		2,331,300
Gross profit		1,088,700
Less Selling and administrative expenses:
Variable selling expense (5,700 × 64)	364,800
Variable administrative expense (5,700 × 20)	114,000
Fixed selling expense	125,200
Fixed administrative expense	207,100
Total selling and administrative expenses		811,100
Operating income		277,600

b Fanelli Corporation

For the month of July

   Contribution formats income statement

Particulars	$	$
Revenue:
Sales (5,700 × 600)		3,420,000
Less variable cost:
Cost of goods sold (5,700 × 409)	2,331,300
Variable selling expense (5,700 × 64)	364,800
Variable administrative expense (5,700 × 20)	114,000
Total variable costs		2,810,100
Contribution margin		609,900
Less Fixed costs:
Fixed selling expense	125,200
Fixed administrative expense	207,100
Total expense		332,300
Operating income		277,600

Cost of goods sold is variable cost completely.

Gross profit under traditional income statement (absorption) is $1,088,700 and contribution margin income statement is $277,600.

Total variable cost per units is 493 and contribution margin per unit is $107.

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