Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,505 per unit and then sells them to retail customers for an average price of $3,500 each. The company’s selling and administrative costs for a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$	940 per month
Sales salaries and commissions	$	4,775 per month, plus 3% of sales
Delivery of pianos to customers	$	62 per piano sold
Utilities	$	653 per month
Depreciation of sales facilities	$	4,952 per month
Administrative:
Executive salaries	$	13,436 per month
Insurance	$	692 per month
Clerical	$	2,458 per month, plus $42 per piano sold
Depreciation of office equipment	$	905 per month

During August, Marwick’s Pianos, 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

1. Preparation of traditional format Income Statement for August of Marwick's Pianos, Inc.

PARTICULARS	AMOUNT   $	AMOUNT   $
Revenues :
Sales revenue                       (61 pianos * 3,500)		2,13,500
Less : Cost of goods sold   (61 pianos * 1,505)		-91,805
Gross Profit		1,21,695
Less : Expenses
Selling Expenses :
Advertising expense	940
Sales Salaries and commissions
(4,775 + 3% of 2,13,500)	11,180
Delivery expense                   (61 pianos * 62)	3,782
Utilities expense	653
Depreciation of sales facilities	4,952
Total Selling Expenses		-21,507
Administrative Expenses :
Executive salaries	13,436
Insurance expenses	692
Clerical Salaries                       (2,458 + 42 *61)	5,020
Depreciation of office equipment	905
Total Administrative Expenses		-20,053
Net Income		$80135

2. Preparation of Contribution format Income Statement for August of Marwick's Pianos, Inc.

PARTICULARS	TOTAL $	PER UNIT   $
Sales revenue	2,13,500	3,500
Less : Variable cost
Cost of goods sold	91,805	1,505
Sales salaries and commission	6,405	105
Delivery expenses	3,782	62
clerical salaries	2,562	42
Total variable cost	-1,04,554	1,714
Total contribution margin	1,08,946	1,786
Less : Fixed cost
Advertising expense	940
Sales Salaries and commissions	4,775
Utilities expense	653
Depreciation of sales facilities	4,952
Executive salaries	13,436
Insurance expenses	692
Clerical Salaries	2,458
Depreciation of office equipment	905
Total Fixed cost	-28,811
Net Income	$80,135

_ _ _ _ x _ _ _ _

ALL THE BEST

For any doubts leave a comment below.