Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,486 per unit and then sells them to retail customers for an average price of $2,700 each. The company’s selling and administrative costs for a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$	934 per month
Sales salaries and commissions	$	4,774 per month, plus 4% of sales
Delivery of pianos to customers	$	61 per piano sold
Utilities	$	653 per month
Depreciation of sales facilities	$	4,963 per month
Administrative:
Executive salaries	$	13,504 per month
Insurance	$	683 per month
Clerical	$	2,516 per month, plus $38 per piano sold
Depreciation of office equipment	$	947 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.

Prepare a traditional format income statement for August. (A "Net operating loss" should be entered as a negative number.)

Marwick's Pianos, Inc. Traditional Income Statement For the Month of August Sales $153,900 Cost of goods sold Selling and administrative expenses: Selling expenses: Advertising $934 Sales salaries and commissions Utilities 653 Depreciation of sales facilities 4,963 Delivery of pianos Total selling expenses 6,550 Administrative expenses: Insurance 683 Executive salaries 13,504 Depreciation of office equipment 947 Clerical Total administrative expenses 15,134 Total selling and administrative expenses 21,684 Net operating income

Answer 1

Traditional Income Statement:
Sales revenue (57 units @ 2700)						153900
Less: Cost of goods sold (57 units @ 1486)						84702
Gross Profit						69198
Selling and Admin expenses
Selling expenses
Advertising					934
Sales salaries and commission (153900*4% +4774)					10930
Delivery of Pianos (57*61)					3477
Utilities					653
Depreciation of sales facilities					4963
Total Selling expense						20957
Admin expenses:
Executive salaries					13504
Insurance expenses					683
Clerical (57*38+2516)					4682
Depreciation of equipment					947
Total Admin expenses						19816
Total selling and admin expenses						40773
Net income						28425
Contribution margin Income Statement:
				Total	Cost per unit
Sales revenue				153900	2700
Less: Variable cost
Cost of goods sold				84702	1486
Sales salaries and commission				6156	108
Delivery of Piano				3477	61
Clerical expense				2166	38
Total Variable cost				96501	1693
Cntribution Margin (Sales -Total variable cost)				57399	1007
Less: Fixed cost
Advertising				934
Sales salaries				4774
Utilities				653
Depreciation of sales facilities				4963
Executive salaries				13504
Insurance expenses				683
Clerical expense				2516
Depreciation on Equipment				947
Total fixed cost				28974
Net Income				28425