Question

Problem 1-25 Traditional and Contribution Format Income Statements [LO1-6] Milden Company is a merchandiser that plans to sell 31,000 units during the next quarter at a selling price of $58 per unit. The company also gathered the following cost estimates for the next quarter: Cost Cost Formula Cost of good sold $28 per unit sold Advertising expense $178,000 per quarter Sales commissions 5% of sales Shipping expense $48,000 per quarter + $5.00 per unit sold Administrative salaries $88,000 per quarter Insurance expense $9,800 per quarter Depreciation expense $58,000 per quarter Required: 1. Prepare a contribution format income statement for the next quarter. 2. Prepare a traditional format income statement for the next quarter.

Answer 1

1.

Contribution format income statement

Sales (31,000 x 58)	1,798,000
Variable expenses:
Cost of goods sold (31,000 x 28)	- 868,000
Sales commissions (1,798,000 x 5%)	- 89,900
Shipping expense (31,000 x 5)	- 155,000
Contribution margin	685,100
Fixed expenses:
Advertising expense	- 178,000
Shipping expense	- 48,000
Administrative expense	- 88,000
Insurance expense	- 9,800
Depreciation expense	- 58,000
Operating income	$303,300

2.

Traditional format income statement

Sales	1,798,000
Cost of goods sold	- 868,000
Gross profit	930,000
Operating expenses:
Sales commissions	- 89,900
Shipping expense (155,000 + 48,000)	- 203,000
Advertising expense	- 178,000
Administrative expense	- 88,000
Insurance expense	- 9,800
Depreciation expense	- 58,000
Operating income	$303,300