Question

Problem 1-21 Traditional and Contribution Format Income Statements (LO1-6) Marwick's Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $2,450 per unit and then sells them to retail customers for an average price of $3,125 each. The company's selling and administrative costs for a typical month are presented below: Cost Formula Costs Selling: Advertising Sales salaries and commissions Delivery of pianos to customers Utilities Depreciation of sales facilities Administrative: Executive salaries Insurance clerical Depreciation of office equipment $700 per month $950 per month, plus 8% of sales $30 per piano sold $350 per month $800 per month $2,500 per month $400 per month $1,000 per month, plus $20 per piano sold $300 per month During August, Marwick's Pianos, Inc., sold and delivered 40 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare a traditional format income statement for August.

Answer 1

1) traditional format income statement :

Marwick's piano Inc
Traditional income statement
For the month of August
Sales		$125000
(-) cost of goods sold		$98000
Gross profit		$27000
(-) selling and administrative expenses :
Selling expenses :
Advertising	$700
Sales salaries and commission	$10950
Delivery expense	$1200
Utilities	$350
Depreciation	$800
Total selling expense	$14000
Administrative expenses :
Executive salaries	$2500
Insurance	$400
Clerical	$1800
Depreciation	$300
Total administrative expenses	$5000
Total selling and administrative expenses		$19000
Net profit		$8000

2) contribution margin format income statement :

Marwicks piano Inx
Contribution margin income statement
For the month of August
	Total	per piano
Sales	$125000	$3125
(-) variable expenses:
Purchase cost	$98000	$2450
Sales salaries and commission	$10000	$250
Delivery expense	$1200	$30
Clerical expense	$800	$20
Total variable expense	$110000	$2750
Contribution margin	$15000	$375
(-) fixed expenses :
Advertising	$700
Sales salaries and commission	$950
Utilities	$350
Depreciation of sales facilities	$800
Executive salary	$2500
Insurance	$400
Clerical	$1000
Depreciation of office equipment	$300
Total fixed expenses	$7000
Net profit	$8000

Note 1: calculation of total sales value -

Total sales = total units sold × selling price per unit.

= 40 × $3125

= $125000

Note 2: calculation of cost of goods sold -

Cost of goods sold = units sold × cost per unit.

= 40 × $2450

= $98000

Note 3: calculation of total sales salaries and commission -

Total = $950 + 8% of sales.

= $950 + ($125000×8%)

= $950 + $10000

= $10950

Out of this, $950 is fixed cost and $10000 is variable ($250 per piano is variable).

Note 4: calculations of total delivery expense -

Total expense = total units sold × per unit cost.

= 40 × $30

= $1200

Note 5: calculations of total clerical expense -

Total expense = $1000 + $20 per piano sold.

= $1000 + ($20 × 40)

= $1000 + $800

= $1800

Out of this $1000 is fixed cost and $800 is variable ($20 per piano is variable).