Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,482 per unit and then sells them to retail customers for an average price of $2,600 each. The company’s selling and administrative costs for a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$948 per month
Sales salaries and commissions	$4,773 per month, plus 3% of sales
Delivery of pianos to customers	$59 per piano sold
Utilities	$632 per month
Depreciation of sales facilities	$4,928 per month
Administrative:
Executive Salaries	$13,472 per month
Insurance	$701 per month
Clerical	$2,537 per month, plus $35 per piano sold
Depreciation of office equipment	$888 per month

During August, Marwick’s Pianos, Inc., sold and delivered 58 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

Solution

Marwick's Pianos Inc
Traditional Income Statement
For the Month of August
Sales revenue		$   1,50,800.00
Less: Cost of Goods sold		$       85,956.00
Gross Profit		$       64,844.00
Selling and Administrative Expense
Selling Expenses
Advertising	$             948.00
Sales salaries and Commission	$          9,297.00
Delivey Expense	$          3,422.00
Utilities	$             632.00
Depreciation of sales facility	$          4,928.00
Total Selling Expenses	$       19,227.00
Administrative Expenses
Executive Salaries	$       13,472.00
Insurance	$             701.00
Clerical	$          4,567.00
Depreciation- Office Equipment	$             888.00
Total Administrative expenses	$       19,628.00
Total Selling and Administrative Expense		$       38,855.00
Net income		$       25,989.00

.

Marwick's Pianos Inc
Contribution formal Income statement
For the Month of August
	Total	Per Piano
Sales	$    1,50,800.00	$         2,600.00
variable Expenses
Direct material cost	$       85,956.00	$         1,482.00
Variable Sales salaries and Commission	$          4,524.00	$               78.00
Delivery Expenses	$          3,422.00	$               59.00
Clerical	$          2,030.00	$               35.00
Total Variable Cost	$       95,932.00	$         1,654.00
Contribution Margin	$       54,868.00	$             946.00
Fixed costs
Advertising	$             948.00
Fixed Sales salaries and Commission	$          4,773.00
Utilities	$             632.00
Depreciation- Sales Facility	$          4,928.00
Executive salaries	$       13,472.00
Insurance	$             701.00
Clerical fixed cost	$          2,537.00
Depreciation- Office equipment	$             888.00
Total Fixed cost	$       28,879.00
Net Income	$       25,989.00