Question

Home Entertainment is a small, family-owned business that purchases LCD televisions from a reputable manufacturer and sells them at the retail level. The televisions sell, on average, for $2,250 each. The average cost of a television from the manufacturer is $1,340.

Home Entertainment has always kept careful accounting records, and the costs that it incurs in a typical month are as follows:

  

Costs	Cost Formula
Selling:
Advertising	$	1,135	per month
Delivery of televisions	$	45	per television sold
Sales salaries and commissions	$	3,070	per month, plus 4% of sales
Utilities	$	460	per month
Depreciation of sales facilities	$	3,660	per month
Administrative:
Executive salaries	$	9,550	per month
Depreciation of office equipment	$	520	per month
Clerical	$	1,660	per month, plus $41 per television sold
Insurance	$	480	per month

  

During April, the company sold and delivered 210 televisions.

  

Required:

1.	Prepare an income statement for April using the traditional format with costs organized by function.

      

2.	Prepare an income statement for April, this time using the contribution format with costs organized by behaviour. Show costs and revenues on both a total and a per unit basis down through contribution margin.

      

.

Answer 1

Solution Home Entertainment Income Statement For the Month Ended April 30 Particulars Amount Amount Sales (210 televisions x $2,250 per set) Less: Cost of goods sold (210 televisions x $1,340 per set) Gross margin $472,500 $281,400 $191,100 Less: Selling and administrative expenses: Selling expenses Advertising Deliveryof televisions (210 televisions $45 per set) Sales salaries and commissions [$3,070 + (4% >< 472500)) Utilities Depreciation of sales facilities $1,135 $9,450 $21,970 S460 $3,660 $36,675 Total selling expenses Administrative expenses: Executive salaries Depreciation of office equipment Clerical [$1,660(210 televisions x $41 per set)] Insurance $9,550 S520 $10,270 $480 $20,820 Total administrative expenses Total selling and administrative expenses Operating income $57,495 $133,605

Home Entertainment Income Statement For the Month Ended April 30 Per Unit $2,250 Particulars Amount Amount Sales (210 televisions x $2,250 per set) Less: Variable expenses $472,500 Cost of goods sold (210 televisionsx $1,340 per set) Delivery of televisions (210 televisions x $45 per set) Sales commissions (4% x $472500) Clerical (210 televisions $41 per set) $281,400 $9,450 $18,900 $8,610 $1,340 $45 $90 $41 Total variable expenses Contribution margin $318,360 $154,140 $1,516 $734 Less: Fixed expenses: Advertising Sales salaries Utilities Depreciation of sales facilities Executive salaries Depreciation of office equipment Clerical nsurance $1,135 $3,070 $460 $3,660 $9,550 $520 $1,660 $480 Total fixed expenses Operating income $20,535 $133,605