Question

Home Entertainment is a small, family-owned business that purchases LCD televisions from a reputable manufacturer and sells them at the retail level. The televisions sell, on average, for $1,680 each. The average cost of a television from the manufacturer is $1,030.

Home Entertainment has always kept careful accounting records, and the costs that it incurs in a typical month are as follows:

Costs	Cost Formula
Selling:
Advertising	$	1,045	per month
Delivery of televisions	$	50	per television sold
Sales salaries and commissions	$	3,700	per month, plus 5% of sales
Utilities	$	420	per month
Depreciation of sales facilities	$	3,800	per month
Administrative:
Executive salaries	$	8,200	per month
Depreciation of office equipment	$	705	per month
Clerical	$	1,740	per month, plus $52 per television sold
Insurance	$	750	per month

During April, the company sold and delivered 227 televisions.

1. Prepare an income statement for April using the traditional format with costs organized by function.

HOME ENTERTAINMENT Traditional Income Statement For the Month Ended April 30 Sales Cost of goods sold Contribution margin 0 Selling and administrative expenses: Selling expenses: Advertising $1,045 Delivery of televisions 11,350 Sales salaries and commissions Utilities 420 Depreciation of sales facilities Total selling expenses 12,815 Administrative expenses: Executive salaries 8,200 Depreciation of office equipment 705 Clerical 13,544 Insurance 750 Total administrative expenses $23,199 Total selling and administrative expenses 36,014 Operating income $(36,014)

Prepare an income statement for April, this time using the contribution format with costs organized by behaviour. Show costs and revenues on both a total and a per unit basis down through contribution margin.

HOME ENTERTAINMENT Contribution Format Income Statement For the Month Ended April 30 Total Per Unit Sales Variable expenses: Cost of goods sold Delivery of televisions Sales commissions Clerical Total variable expenses 0 0 Contribution margin 0 $0 Fixed expenses: Advertising 1,045 Sales salaries Utilities Depreciation of sales facilities Executive salaries Depreciation of office equipment Clerical Insurance Total fixed expenses 1,045 Operating income $(1,045)

Answer 1

Solution

HOME ENTERTAINMENT
Traditional Income Stetement
For the month ending April 30
Sales revenue		$   3,81,360.00
Less: Cost of Goods sold		$   2,33,810.00
Gross Profit		$   1,47,550.00
Selling and Administrative Expense
Selling Expenses
Advertising	$          1,045.00
Sales salaries and Commission	$       22,768.00
Delivery Expense	$       11,350.00
Utilities	$             420.00
Depreciation of sales facility	$          3,800.00
Total Selling Expenses	$       39,383.00
Administrative Expenses
Executive Salaries	$          8,200.00
Insurance	$             750.00
Clerical	$       13,544.00
Depreciation- Office Equipment	$             705.00
Total Administrative expenses	$       23,199.00
Total Selling and Administrative Expense		$       62,582.00
Net income		$       84,968.00

..

HOME ENTERTAINMENT
Contribution formal Income statement
For the month ending April 30
	Total	Per Piano
Sales	$    3,81,360.00	$         1,680.00
variable Expenses
Direct material cost	$    2,33,810.00	$         1,030.00
Variable Sales salaries and Commission	$       19,068.00	$               84.00
Delivery Expenses	$       11,350.00	$               50.00
Clerical	$       11,804.00	$               52.00
Total Variable Cost	$    2,76,032.00	$         1,216.00
Contribution Margin	$    1,05,328.00	$             464.00
Fixed costs
Advertising	$          1,045.00
Fixed Sales salaries and Commission	$          3,700.00
Utilities	$             420.00
Depreciation- Sales Facility	$          3,800.00
Executive salaries	$          8,200.00
Insurance	$             750.00
Clerical fixed cost	$          1,740.00
Depreciation- Office equipment	$             705.00
Total Fixed cost	$       20,360.00
Net Income	$       84,968.00