Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,487 per unit and then sells them to retail customers for an average price of $2,100 each.
The company’s selling and administrative costs for a typical month are presented below:
Costs
Cost Formula Selling:
Advertising $ 935 per month
Sales salaries and commissions $ 4,800 per month, plus 6% of sales
Delivery of pianos to customers: $ 60 per piano sold
Utilities $ 656 per month
Depreciation of sales facilities $ 5,028 per month
Administrative:
Executive salaries $ 13,418 per month Insurance $ 682 per month
Clerical $ 2,498 per month, plus $39 per piano sold
Depreciation of office equipment $ 878 per month
During August, Marwick’s Pianos, Inc., sold and delivered 56 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.
1. Traditional format
| Income statement for the year ended 31 Aug 2020 | ||
| $ | $ | |
| Sales | 117600 | |
| Less Cost of sales | ||
| Purchases | 83272 | 83272 |
| Gross profit | 34328 | |
| Less Expenses | ||
| Advertising | 935 | |
| Salaries and Commission | 11856 | |
| Utilities | 656 | |
| Depreciation os sales facilities | 5028 | |
| Executive salaries | 13418 | |
| Insurance | 682 | |
| Clerical | 4682 | |
| Delivery expenses | 3360 | |
| Depreciation of Office equipment | 878 | 41495 |
| Loss for the month | -7167 |
2. Contribution format
| Income statement for the year ended 31 Aug 2020 | ||||
| Total | Per Unit | |||
| $ | $ | $ | $ | |
| Sales | 117600 | 2100 | ||
| Less Variable costs | ||||
| Delivery expenses | 3360 | 60 | ||
| Purchases | 83272 | 1487 | ||
| Salaries and Commission | 7056 | 126 | ||
| Clerical | 2184 | 95872 | 39 | 1712 |
| Contribution | 21728 | 388 | ||
| Less Fixed Cost | ||||
| Advertising | 935 | 16.7 | ||
| Salaries and Commission | 4800 | 85.71 | ||
| Utilities | 656 | 11.71 | ||
| Depreciation os sales facilities | 5028 | 89.79 | ||
| Executive salaries | 13418 | 239.61 | ||
| Insurance | 682 | 12.18 | ||
| Clerical | 2498 | 44.61 | ||
| Depreciation of Office equipment | 878 | 28895 | 15.68 | 515.99 |
| Loss for the month | -7167 | -127.99 |
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