Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,518 per unit and then sells them to retail customers for an average price of $3,100 each. The company’s selling and administrative costs for a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$	961 per month
Sales salaries and commissions	$	4,807 per month, plus 5% of sales
Delivery of pianos to customers	$	59 per piano sold
Utilities	$	645 per month
Depreciation of sales facilities	$	4,914 per month
Administrative:
Executive salaries	$	13,473 per month
Insurance	$	715 per month
Clerical	$	2,535 per month, plus $40 per piano sold
Depreciation of office equipment	$	874 per month

During August, Marwick’s Pianos, Inc., sold and delivered 57 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

	Traditional Income Statement
	Sales		(57*3,100)					176700
	Cost of goods sold		(57*1518)					86526
	Gross margin							90174
	Selling and administrative expense
	Selling expenses:
	Advertising						961
	Sales salaries and commission			(4,807+176700*5%)			13642
	Delivery of pianos						3363
	Utilities						645
	Depreciation of sales facilities						4,914
	Total selling expense						23,525
	Administrative expenses
	Executive salaries						13,473
	Insurance						715
	Clerical			(2535+57*40)			4815
	Depreciation of office equipment						874
	Total administrative expense						19,877
	total selling And administrative expense							43,402
	Net operating loss							46,772
	Contribution Format income statement
							total	per piano
	Sales						176700	3,100
	Variable expenses
	Sales salaries and commission						8835	155
	Delivery of pianos						3363	59
	Clerical						2280	40
	Cost of good sold						86526	1,518
	total variable expenses						101004	1772
	Contribution margin						75696	1,328
	Fixed expenses:
	Advertising						961
	Sales salaries and commission						4,807
	Utilities						645
	Depreciation of office equipment						874
	Depreciation of sales Facilities						4,914
	Executive salaries						13,473
	insurance						715
	clerical						2,535
	total fixed expenses						28,924
	Net operating income						46,772