Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold 195, 000 13,000 130,000 $6,500 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 $7,800 $9,750 $ 39,000 11,700 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		$195000
	Variable expenses:
	Cost of goods sold ($13000 + $130000 - $6500)	124800
	Selling expense	9750
	Administrative expense ($156000 - $124800 - $9750)	21450
	Total variable expenses ($195000 - $39000)		$156000
	Contribution margin		$39000
	Fixed expenses:
	Selling expense ($27300 - $7800)	$19500
	Administrative expense	$7800
	Total fixed expense ($39000 - $11700)		$27300
	Net operating income $		$11700
2	Todrick Company
	Traditional Income Statement
	Sales		$195000
	Cost of goods sold		$124800
	Gross profit		$70200
	Selling and administrative expenses:
	Fixed selling expense	$19500
	Variable selling expense	$9750
	Fixed administrative expense	$7800
	Variable administrative expense	$21450	$58500
	Net operating income $		$11700
3	Selling price per unit ($195000/1000)	$195
4	Variable cost per unit ($156000/1000)	$156
5	Contribution margin per unit ($195 - $156)	$39
6	Contribution income statement