Question

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Problem 1-25 Traditional and Contribution Format Income Statements (LO1-6] Milden Company is a merchandiser that plans to sell 39,000 units during the next quarter at a selling price of $65 per unit. The company also gathered the following cost estimates for the next quarter: Cost Cost of good sold Advertising expense Sales commissions Cost Formula $32 per unit sold $ 188,000 per quarter 5% of sales $ 42,000 per quarter + $4.00 per unit sold $ 98,000 per quarter $10,800 per quarter $68,000 per quarter Shipping expense Administrative salaries Insurance expense Depreciation expense Required: 1. Prepare a contribution format income statement for the next quarter. 2. Prepare a traditional format income statement for the next quarter. Complete this question by entering your answers in the tabs below. Required Required Prepare a contribution format income statement for the next quarter. Milden Company Contribution Format Income Statement For the Next Quarter Variable expenses: Total variable expenses Contribution margin Fixed expenses: Total fixed expenses Required 1 Required 2 >

Answer 1

Answer:

1)The contribution format income statement for the next quarter is the following way:

Milden company
Contribution margin income statement
For the next quarter
Particulars	Amount	Amount
Sales	= total sale of units*selling price per unit =39,000*65 = 25,35,000	$25,35,000
Less variable Expenses:
variable cost of goods sold(39,000*32)	$12,48,000
Variable selling expenses(39,000*4)	$1,56,000
Variable selling commission(25,35,000*5/100)	$1,26,750
Total variable Expenses		$15,30,750
Contribution margin(sales-total variable costs)(25,35,000-15,30,750)		$10,04,250
Less Fixed Expenses :
Advertising Expenses	$1,88,000
Shipping expense	$42,000
Administrative expense	$98,000
Insurance expenses	$10,800
Depreciation expense	$68,000
Total Fixed Expenses		$4,06,800
Net income (contribution margin -total fixed expenses)(10,04,250-4,06,800)		$5,97,450

2)The Traditional format income statement for the next quarter is the following way:

Milden company
Traditional Format income statement
For the next quarter
Particulars	Amount	Amount
Sales	= total sale of units*selling price per unit =39,000*65 = 25,35,000	$25,35,000
Cost of goods sold(39,000*32)		$12,48,000
Gross margin		$12,87,000
Selling and administrative expenses:
Advertising Expenses	$1,88,000
Shipping expense(42,000+selling expenses[39,000*4])	$1,98,000
Administrative expense	$98,000
Insurance expenses	$10,800
Depreciation expense	$68,000
sales commission(25,35,000*5/100)	$1,26,750
Total selling and administrative expenses		$6,89,550
Net operating income(gross margin-Total selling and administrative expenses)	=12,87,000-6,89,550 =5,97,450	$5,97,450