Question

Otsego, Inc., is a merchandiser that provided the following information: Number of units sold Selling price per unit Variable selling expense per unit Variable administrative expense per unit Total fixed selling expense Total fixed administrative expense Merchandise inventory, beginning balance Merchandise inventory, ending balance Merchandise purchases 12,000 $25 $2.50 $2 $16,000 $17,000 $25,000 $18,000 $101,000 1 Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement.

Answer 1

Answer of Part 1: Otsego Inc Traditional Income Statement Sales Less: Cost of Goods Sold Gross Margin Less: Selling and Administrative Expenses: Selling Expenses 46000 Administrative Expenses 41000 Total Selling and Administrative Expenses Net Operating Income 300000 108000 192000 87000 105000

Calculation:

Sales = 12,000*$25
Sales = $300,000

Cost of Goods Sold = Merchandise Inventory, Beginning Balance + Merchandise Purchases – Merchandise Inventory, Ending Balance
Cost of Goods Sold = $25,000 + $101,000 - $18,000
Cost of Goods Sold = $108,000

Selling Expenses = $2.50 *12,000 + $16,000
Selling Expenses = $46,000

Administrative Expenses = $2*12,000 + $17,000
Administrative Expenses = $41,000

300000 Answer of Part 2: Otsego Inc Contribution Format Income Statement Sales Less: Variable Expenses: Cost of Goods Sold 108000 Selling Expenses (12,000*$2.50) 30000 Administrative Expenses (12,000*$2) 24000 Total Variable Expenses Contribution Margin Less: Fixed Expenses: Selling Expenses 16000 Administrative Expenses 17000 Total Fixed Expenses Net Operating Income 162000 138000 33000 105000