Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,504 per unit and then sells them to retail customers for an average price of $2,400 each. The company’s selling and administrative costs for a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$	961 per month
Sales salaries and commissions	$	4,818 per month, plus 3% of sales
Delivery of pianos to customers	$	57 per piano sold
Utilities	$	647 per month
Depreciation of sales facilities	$	4,958 per month
Administrative:
Executive salaries	$	13,511 per month
Insurance	$	690 per month
Clerical	$	2,463 per month, plus $35 per piano sold
Depreciation of office equipment	$	877 per month

During August, Marwick’s Pianos, Inc., sold and delivered 56 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.

Answer 1

	Marwick's Pianos
	Traditional format Income statement
	Sales (56 units X $2400)		$   1,34,400
Less:	Cost of goods sold (56 units X $1504)		$       84,224
	Gross Profit		$       50,176
Less:	Operating Expenses:
	Selling expenses:
	Advertising	$           961
	Sales Salaries and commission ($1,34,400 X 3%) + $4818	$       8,850
	Delivery of Pianos to customers(56 units X $57)	$       3,192
	Utilities	$           647
	Depreciation of sales facilities	$       4,958
	Administrative expenses:
	Executive salaries	$     13,511
	Insurance	$           690
	Clerical (56 units X $35)+$2463	$       4,423
	Depreciation of office equipment	$           877
	Total operating expense		$       38,109
	Net Income		$       12,067
	Marwick's Pianos
	Contribution format Income statement
		Per unit	Total
	Sales (56 units X $2400)	$       2,400		$ 1,34,400
Less:	Variable cost
	Cost of goods sold (56 units X $1504)	$       1,504	$       84,224
	Sales commission ($1,34,400 X 3%)	$             72	$         4,032
	Delivery of Pianos to customers(56 units X $57)	$             57	$         3,192
	Clerical (56 units X $35)	$             35	$         1,960
	Total Variable cost	$       1,668		$     93,408
	Contribution margin	$           732		$     40,992
Less:	Fixed cost
	Advertising		$             961
	Sales Salaries		$         4,818
	Utilities		$             647
	Depreciation of sales facilities		$         4,958
	Executive salaries		$       13,511
	Insurance		$             690
	Clerical		$         2,463
	Depreciation of office equipment		$             877
	Total Fixed cost			$     28,925
	Net Income			$     12,067