Question

Milden Company is a merchandiser that plans to sell 35,000 units during the next quarter at a selling price of $56 per unit. The company also gathered the following cost estimates for the next quarter:

Cost	Cost Formula
Cost of good sold	$26 per unit sold
Advertising expense	$183,000 per quarter
Sales commissions	6% of sales
Shipping expense	$57,000 per quarter + $4.00 per unit sold
Administrative salaries	$93,000 per quarter
Insurance expense	$10,300 per quarter
Depreciation expense	$63,000 per quarter

Required:

1. Prepare a contribution format income statement for the next quarter.

2. Prepare a traditional format income statement for the next quarter.

Answer 1

1) Contribution format income statement

Sales (35000*56)		1960000
Less: Variable expense
Cost of goods sold (35000*26)	910000
Sales commission	117600
Shipping expense	140000
Total Variable expense		1167600
Contribution margin		792400
Less: Fixed expense
Advertising expense	183000
Shipping expense	57000
Administrative salaries	93000
Insurance expense	10300
Depreciation expense	63000
Total Fixed expense		406300
Net income		386100

2) Traditional income statement

Sales (35000*56)		1960000
Cost of goods sold (35000*26)		910000
Gross profit		1050000
Less: Selling expense
Advertising expense	183000
Sales commission	117600
Shipping expense	197000	497600
Less: Administrative expense
Administrative salaries	93000
Insurance expense	10300
Depreciation expense	63000	166300
Total Selling and administrative expense		663900
Net income		386100