Question

Marwick's Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,512 per unit and then sells them to retail customers for an average price of $3,300 each. The company's selling and administrative costs for a typical month are presented below: Cost Formula Costs Selling: Advertising Sales salaries and commissions Delivery of pianos to customers Utilities Depreciation of sales facilities Administrative: Executive salaries Insurance Clerical Depreciation of office equipment $945 per month $4,801 per month, plus 4% of sales $62 per piano sold $661 per month $5,014 per month $13,543 per month $685 per month $2,485 per month, plus $39 per piano sold $931 per month During August, Marwick's Pianos, Inc., sold and delivered 64 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

Required 1 :
Marwick's Pianos, Inc.
Traditional Income Statement
For the month of August
Sales [ 64 * 3300 ]		211200
Cost of goods sold [ 64 * 1512 ]		96768
Gross margin		114432
Selling and administrative expenses :
Selling expenses :
Advertising	945
Sales salaries and commission [ 4801 + ( 4% * 211200 ) ]	13249
Delivery of pianos [ 64 * 62 ]	3968
Utilities	661
Depreciation of sales facilities	5014
Total selling expenses	23837
Administrative expenses:
Executive salaries	13543
Insurance	685
Clerical [ 2485 + ( 64 * 39 ) ]	4981
Depreciation of office equipment	931
Total administrative expenses	20140
Total selling and administrative expenses		43977
Net operating income		70455

Required 2 :
Marwick's Pianos, Inc.
Contribution format Income Statement
For the month of August
	Total	Per piano
Sales	211200	3300
Variable expenses :
Cost of goods sold	96768	1512
Sales commissions [ 211200 * 4% ]	8448	132
Delivery of pianos	3968	62
Clerical	2496	39
Total variable expenses	111680	1745
Contribution margin	99520	1555
Fixed expenses :
Advertising	945
Sales salaries	4801
Utilities	661
Depreciation of sales facilities	5014
Executive salaries	13543
Insurance	685
Clerical	2485
Depreciation of office equipment	931
Total fixed expenses	29065
Net operating income	70455