Question

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 Shipping expense Administrative salaries Insurance expense Depreciation expense 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 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.

Milden Company
Contribution Format Income Statement
For the Next Quarter
Sales revenue ( 39,000 x 65)			2,535,000
Variable expenses:
Cost of goods sold ( 39,000 x 32)	1,248,000
Sales commission (2,535,000 x 5% )	126,750
Shipping expense ( 39,000 x 4)	156,000
Total Variable expenses			-1530,750
Contribution Margin			$1,004,250
Fixed Expenses:
Advertising expense		188,000
Shipping expense		42,000
Administrative salaries		98,000
Insurance expense		10,800
Depreciation expense		68,000
Total Fixed expenses			-406,800
Operating Income			$597,450

2.

Milden Company
Traditional Income Statement
For the Next Quarter
Sales revenue ( 39,000 x 65)		2,535,000
Cost of goods sold ( 39,000 x 32)		-1,248,000
Gross Profit		$1,287,000
Selling & Administrative expenses:
Advertisement expense	188,000
Sales commission (2,535,000 x 5% )	126,750
Shipping expense ( 42,000 + 39,000 x 4)	198,000
Administrative salaries	98,000
Insurance expense	10,800
Depreciation expense	68,000
Total Selling and Administrative expense		-$689,550
Operating Income		$597,450

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