Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: $ 210,000 $ 14,000 $ 140,000 $ 7,000 Մ Sales Beginning merchandise inventory Purchases Ending merchandise inventory Fixed selling expense Fixed administrative expense Variable selling expense Variable administrative expense Contribution margin Net operating income Մ 8,400 10,500 Մ Մ Մ 42,000 12,600 ՄՌ Required: 1. Prepare a contribution format income statement. 2. Prepare a traditional format income statement. 3. Calculate the selling price per unit. 4. Calculate the variable cost per unit. 5. Calculate the contribution margin per unit. 6. Which income statement format (traditional format or contribution format) would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales?

Answer 1

210000 Requirement: 1 Todrick Company Contribution Format Income Statement Sales Variable expenses: Cost of goods sold 147000 Selling expense 10500 Administrative expense 10500 168000 42000 Total variable expenses Contribution margin Fixed expenses: Selling expense Administrative expense 21000 8400 Total fixed expenses Net Operating income 29400 12600

Requirement: 2 Todrick Company Traditional Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Administrative expense 210000 147000 63000 31500 18900 Total selling and administrative expenses Net operating income 50400 12600 Requirement: 3 Selling price per unit = Sales / Units sold Sales Units sold Selling price per unit 210000 1000 210 Requirement: 4 Variable cost per unit = Total variable cost/Units Total variable cost 168000 units 1000 Variable cost per unit 168

Requirement: 5 Contribution margin per unit = Contribution margin / units sold Contribution margin 42000 Units sold 1000 Contribution margin per unit Requirement: 6 Contribution Format income statement is more useful to managers in estimating the net operating income and deterimining changes in profit according to changes in sales volume

Working notes: Beginning merchandise inventory Add: Purchases Less: Ending merchandise inventory Cost of goods sold 14000 140000 7000 147000 Sales Less: Cost of goods sold Less: Variable selling expense Less: Contribution margin Variable administrative expense 210000) 147000 10500 42000 10500 Contribution margin Fixed administrative expenses Net operating income Fixed selling expense 42000 8400 12600 21000