Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold:

Sales	$	315,000
Beginning merchandise inventory	$	21,000
Purchases	$	210,000
Ending merchandise inventory	$	10,500
Fixed selling expense	$	?
Fixed administrative expense	$	12,600
Variable selling expense	$	15,750
Variable administrative expense	$	?
Contribution margin	$	63,000
Net operating income	$	18,900

Required:

1. Prepare a contribution format income statement.

2. Prepare a traditional format income statement.

3. Calculate the selling price per unit.

4. Calculate the variable cost per unit.

5. Calculate the contribution margin per unit.

6. Which income statement format (traditional format or contribution format) would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales?

	Todrick Company Contribution Format Income Statement Sales $315,000 Variable expenses: Cost of goods sold $220,500 Selling expense 15,750 Administrative expense 15,750 252,000 Contribution margin 63,000 Fixed expenses: Selling expense $31,500 Administrative expense 12,600 44,100 Net operating income $18,900

Prepare a traditional format income statement.

	Todrick Company Traditional Income Statement Sales $315,000 Cost of goods sold 220,500 Gross margin 94,500 Selling and administrative expenses: Selling expense $47,250 Administrative expense ???? 47,250 Net operating income $????

3. Calculate the selling price per unit.

4. Calculate the variable cost per unit.

5. Calculate the contribution margin per unit.

	3. Selling price per unit $315 4. Variable cost per unit $?????? 5. Contribution margin per unit $63

Answer 1

Ans. 1	TODRICK COMPANY
	Contribution Format Income Statement
	Particulars	Amount	Amount
	Sales		$315,000
	Variable expenses:
	Cost of goods sold	$220,500
	Selling expenses	$15,750
	Administrative expenses	$15,750
	Total variable expenses		$252,000
	Contribution margin		$63,000
	Fixed expenses:
	Selling expenses	$31,500
	Administrative expenses	$12,600
	Total fixed expenses		$44,100
	Net operating income		$18,900
Ans. 2	TODRICK COMPANY
	Traditional Income Statement
	Particulars	Amount	Amount
	Sales		$315,000
	Cost of goods sold		$220,500
	Gross margin		$94,500
	Selling and Administrative expenses:
	Variable selling expenses	$15,750
	Fixed selling expenses	$31,500
	Variable Administrative expenses	$15,750
	Fixed Administrative expenses	$12,600
	Total selling and administrative expenses		$75,600
	Net operating income		$18,900
Ans. 3	Selling price per unit   =   Total sales / Units sold
	$315,000 / 1,000
	$315	per unit
Ans. 4	Variable cost per unit =   Total variable cost / Units sold
	$252,000 / 1,000
	$252	per unit
Ans. 5	Contribution margin per unit = Selling price per unit - Variable cost per unit
	$315 - $252
	$63	per unit
* WORKING NOTES:
	Cost of goods sold = Beginning inventory + Merchandise purchases - Ending inventory
	$21,000 + $210,000 - $10,500
	$220,500
	*Total fixed expenses = Contribution margin - Net operating income
	$63,000 - $18,900   =    $44,100
	*Fixed selling expenses   =   Total fixed expenses - Fixed administrative expenses
	$44,100 - $12,600   =   $31,500
	*Total variable expenses = Sales - Contribution margin
	$315,000 - $63,000   =   $252,000
	*Variable administrative expenses   =   Total variable expenses - Variable selling expenses - Cost of goods sold
	$252,000 - $15,750 - $220,500   =   $15,750