Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,496 per unit and then sells them to retail customers for an average price of $2,000 each. The company’s selling and administrative costs for a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$	963 per month
Sales salaries and commissions	$	4,807 per month, plus 4% of sales
Delivery of pianos to customers	$	63 per piano sold
Utilities	$	635 per month
Depreciation of sales facilities	$	5,051 per month
Administrative:
Executive salaries	$	13,522 per month
Insurance	$	680 per month
Clerical	$	2,545 per month, plus $42 per piano sold
Depreciation of office equipment	$	878 per month

During August, Marwick’s Pianos, Inc., sold and delivered 57 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.

Answer 1

1.

Marwick's Pianos, Inc., Income Statement For The Month Ended August
Sales (57*$2,000)		$114,000
Cost of goods sold (57*$1,496)		85,272
Gross profit		28,728
Selling and administrative expenses:
Advertising	$963
Sales salaries and commission ($4,807+114,000*4%)	9,367
Delivery of pianos to customers (57*$63)	3,591
Depreciation of sales facilities	5,051
Utilities	635
Executive salaries	13,522
Insurance	680
Clerical (2,545+57*$42)	4,939
Depreciation of office equipment	878
Total		39,626
Net income (loss)		$(10,898)

2.

Marwick's Pianos, Inc., Income Statement For The Month Ended August
Sales	$114,000	$2,000
Variable costs:
Cost of goods sold	85,272	1,496
Sales salaries and commission (114,000*4%)	4,560	80
Delivery of pianos to customers	3,591	63
Clerical	2,394	42
Total variable costs	95,817	1,681
Contribution margin	18,183	319
Fixed costs:
Advertising	963
Sales salaries and commission	4,807
Utilities	635
Depreciation of sales facilities	5,051
Executive salaries	13,522
Insurance	680
Clerical	2,545
Depreciation of office equipment	878
Total fixed costs	29,081
Net income (loss)	$(10,898)