Question

Problem 1-21 Traditional and Contribution Format Income Statements [LO1-6]

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,483 per unit and then sells them to retail customers for an average price of $2,300 each. The company’s selling and administrative costs for a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$	943 per month
Sales salaries and commissions	$	4,807 per month, plus 3% of sales
Delivery of pianos to customers	$	59 per piano sold
Utilities	$	657 per month
Depreciation of sales facilities	$	4,962 per month
Administrative:
Executive salaries	$	13,504 per month
Insurance	$	697 per month
Clerical	$	2,500 per month, plus $37 per piano sold
Depreciation of office equipment	$	897 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.

Marwick's Pianos, Inc. Traditional Income Statement For the Month of August Sales $131,100 Cost of goods sold 84,531 Gross margin 46,569 Selling and administrative expenses: Selling expenses: Administrative expenses $943 Sales salaries and commissions 1,051 Delivery of pianos 3,363 Utilities 657 Depreciation of sales facilities 4,962 Total selling expenses 10,976 Administrative expenses: Executive salaries 13,504 Insurance 697 Clerical 2,500 Depreciation of office equipment 897 Total administrative expenses 17,598 Total selling and administrative expenses 28,574 Net operating income $10,976

• down through contribution margin. (A "Net operating loss" should be entered as a negative number.)

  	Marwick's Pianos, Inc. Contribution Format Income Statement For the Month of August Total Per Piano Sales $131,100 $2,300 Variable expenses: Sales salaries and commissions Delivery of pianos Clerical Cost of goods sold Total variable expenses 0 0 Contribution margin Fixed expenses: Total fixed expenses 0

Answer 1

Solution 1:

Traditional Income Statement - Marwick Pianos Inc.
Particulars	Details	Amount
Sales (2300*57)		$131,100.00
Less: Cost of Goods Sold (1483*57)		$84,531.00
Gross Profit		$46,569.00
Sellling Expenses:
Advertising	$943.00
Sales Salaries and Commissions (4807 + 3% of 131100)	$8,740.00
Delivery of Pianos to customers (59*57)	$3,363.00
Utilities	$657.00
Depreciation of Sales Facilities	$4,962.00	$18,665.00
Administrative Expenses:
Executive Salaries	$13,504.00
Insurance	$697.00
Clerical (2500 + 37*57)	$4,609.00
Depreciation of office equipment	$897.00	$19,707.00
Net Income		$8,197.00

Solution 2:

Contribution margin Income Statement - Marwick Pianos Inc.
Particulars	Per Unit	Total
Sales	$2,300.00	$131,100.00
Variable Cost:
Purchase Cost	$1,483.00	$84,531.00
Sales Commission	$69.00	$3,933.00
Delivery of Pianos to customers	$59.00	$3,363.00
Clerical Expense	$37.00	$2,109.00
Contribution	$652.00	$37,164.00
Fixed Cost:
Advertising		$943.00
Sales Salaries		$4,807.00
Utilities		$657.00
Depreciation of Sales Facilities		$4,962.00
Executive Salaries		$13,504.00
Insurance		$697.00
Clerical		$2,500.00
Depreciation of office equipment		$897.00
Net Income		$8,197.00