Question

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Question:

Problem 1-19 Traditional and Contribution Format Income Statements (L01-6) Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: $450.000 $ 30,000 $300.000 15,000 Sales Beginning merchandise inventory Purchases Ending merchandise inventory Fixed selling expense Fixed administrative expense Variable selling expense Variable administrative expense Contribution margin Net operating income $ $ 18,000 22,500 $ $ 90,000 27,000 Required: 1. Prepare a contribution format inconje 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 format:

Part 1

Part 2:

part 3:

part 4:

Answer 1

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1	Todrick Company
	Contribution Income statement
	Sales		$   4,50,000
Less:	Variable cost
	Cost of goods sold	$ 3,15,000
	Variable Selling Expense	$     22,500
	Variable Administrative Expenses	$     22,500	$   3,60,000
	Contribution margin		$       90,000
Less:	Fixed expenses
	Fixed Selling Expense	$     45,000
	Fixed Administrative Expenses	$     18,000	$       63,000
	Net operating Income		$       27,000
	Workings:
	Cost of goods sold =	Beginning inventory + Purchases - Ending Inventory
	=	$30000 + $300000 - $15,000
	=	$ 3,15,000
2	Todrick Company
	Traditional Income statement
	Sales		$   4,50,000
Less:	Cost of goods sold		$   3,15,000
	Gross Profit		$   1,35,000
Less:	Selling and administrative expenses
	Selling Expense ($22500 + $45000)	$     67,500
	Advertising expense ($22500 + $18000)	$     40,500
			$   1,08,000
	Net operating Income		$       27,000
	Workings:
	Cost of goods sold =	Beginning inventory + Purchases - Ending Inventory
	=	$30000 + $300000 - $15,000
	=	$ 3,15,000
3	Selling price per unit	=	Sales Value / Number of units sold
		=	$450000 / 1000 units
		=	$             450
4	Variable cost per unit	=	variable cost / Number of units sold
		=	$360000 / 1000 units
		=	$             360
5	Contribution margin per unit	=	Selling price per unit - Variable cost per unit
		=	$450 - $360
		=	$               90
6	Contribution Income Statement
	As results under both the methods is same but Contribution Income Statement gives reasonable allocation of cost.