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 expense Fixed administrative expense Variable selling expense Variable administrative expense Contribution margin Net operating income is as it is as it is esse $ 180,000 $ 12,000 $ 120,000 6,000 ? 7,200 9,000 ? 36,000 10,800 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

Solution 1:

Todrick Company
Contribution format Income Statement
Sales		$1,80,000
Variable Expenses:
Coat of goods sold ($12000+$120000-$6000)	$1,26,000
Variable Selling Expenses	$9,000
Variable Administrative Expenses ($144000-126000-9000)	$9,000
Total Variable Expenses ($180000-$36000)		$1,44,000
Contribution Margin		$36,000
Fixed Expenses:
Fixed Selling Expenses ($25200 -$7200)	$18,000
Fixed Administrative Expenses	$7,200
Total Fixed Expenses ($36000-$10800)		$25,200
Net Operating Income		$10,800

Solution 2:

Todrick Company
Traditional format Income Statement
Sales		$1,80,000
Less: Cost Of Goods sold		$1,26,000
Gross Profit		$54,000
Selling and Administrative Expenses:
Variable Selling Expenses	$9,000
Variable Administrative Expenses	$9,000
Fixed Selling Expenses	$18,000
Fixed Administrative Expenses	$7,200
Total expenses		$43,200
Net Operating Income		$10,800

Solution 3:

Selling Price per unit = $180000/1000 = $180

Solution 4:

Variable cost per unit = $144000/ 1000 = $144

Solution 5:

Contribution margin per unit = $36000/1000 = $36

Solution 6:

Contribution format income statement would be more useful.