Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold Sales Beginning merchandise inventory Purchases Ending merchandise inventory Fixed selling expensee Fixed administrative expense Variable selling expense Variable administrative expense Contribution margin Net operating income $ 420,000 $ 28,000 $ 280,000 $ 14,000 $ 16,800 $ 21,000 $ 84,000 $ 25,200 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?

Answer 1

1.

Todrick Company
Contribution Format Income Statement
Sales		420000
Variable expenses:
Cost of goods sold ($28000 + $280000 - $14000)	294000
Selling expense	21000
Administrative expense ($336000 - $294000 - $21000)	21000
Total variable expenses ($420000 - $84000)		336000
Contribution margin		84000
Fixed expenses:
Selling expense ($58800 - $16800)	42000
Administrative expense	16800
Total fixed expense ($84000 - $25200)		58800
Net operating income $		25200

2.

Todrick Company
Traditional Income Statement
Sales		420000
Cost of goods sold		294000
Gross profit		126000
Selling and administrative expenses:
Fixed selling expense	42000
Variable selling expense	21000
Fixed administrative expense	16800
Variable administrative expense	21000	100800
Net operating income $		25200

3.	Selling price per unit ($420000/1000)	420
4.	Variable cost per unit ($336000/1000)	336
5.	Contribution margin per unit ($420 - $336)	84

6. Contribution format income statement