Question

Marwick's Planos, Inc., purchases pianos from a large manufacturer for an average cost of $1,484 per unit and then sells them to retail customers for an average price of $2,900 each. The company's selling and administrative costs for a typical month are presented below Cost Formula Costs Selling: Advertising Sales salaries and commissions Delivery of pianos to customers Utilities Depreciation of sales facilities Administrative: Executive salaries Insurance Clerical Depreciation of office equipment $931 per month $4,772 per month, plus 6% of sales $60 per piano sold $636 per month $4,923 per month ces $13,512 per month $685 per month $2,526 per month, plus $37 per piano sold $900 per month During August, Marwick's Planos, Inc., sold and delivered 61 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

Answer 1

Marwick's Pianos Inc Traditional Income Statement For the Month of August
Sales ( 61 pianos x $ 2,900)		$ 176,900
Less: Cost of goods sold             ( 61 pianos x $ 1,484)		($ 90,524 )
Gross margin		$ 86,376
Selling and administrative expenses:
Selling expenses:
Advertising	$ 931
Sales salaries and commissions               ( $ 4,772 + ( $ 176,900 x 6% )	$ 15,386
Utilities	$ 636
Depreciation of sales facilities	$ 4,923
Delivery of pianos to Customers             ( 61 Pianos x $ 60)	$ 3,660
Total selling expenses	$ 25,536
Administrative expenses:
Insurance	$ 685
Executive salaries	$ 13,512
Depreciation of office equipment	$ 908
Clerical            ( $ 2,526 + ( 61 pianos x $ 37 )	$ 4,783
Total Administrative expenses	$ 19,888
Total selling and administrative expenses		($ 45,424)
Net operating income		$ 40,952

Marwick's Pianos Inc Contribution Format Income Statement For the Month of August
	Total	Per Piano
Sales ( 61 pianos x $ 2,900)	$ 176,900	$ 2,900
Variable expenses:
Clerical           ( 61 pianos x $ 37)	$ 2,257	$ 37
Sales commissions         ( $ 15,386 (-) $ 4,772 )	$ 10,614	$ 174 ( $ 10,614 / 61)
Delivery of pianos             ( 61 pianos x $ 60 )	$ 3,660	$ 60
Cost of goods sold             ( 61 pianos x $ 1,484 )	$ 90,524	$ 1,484
Total variable expenses	$ 107,055	$ 1,755
Contribution margin	$ 69,845	$ 1,145 ( $ 69,845 / 63)
Fixed expenses:
Advertising	$ 931
Depreciation of sales facilities	$ 4,923
Utilities	$ 636
Executive salaries	$ 13,512
Insurance	$ 685
Depreciation of office equipment	$ 908
Clerical	$ 2,526
Sales salaries	$ 4,772
Total fixed expenses	$ 28,893
Net operating income	$ 40,952