Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,486 per unit and then sells them to retail customers for an average price of $3,000 each. The company’s selling and administrative costs for a typical month are presented below: Costs Cost Formula Selling: Advertising $ 962 per month Sales salaries and commissions $ 4,811 per month, plus 4% of sales Delivery of pianos to customers $ 60 per piano sold Utilities $ 649 per month Depreciation of sales facilities $ 4,968 per month Administrative: Executive salaries $ 13,449 per month Insurance $ 708 per month Clerical $ 2,533 per month, plus $37 per piano sold Depreciation of office equipment $ 876 per month During August, Marwick’s Pianos, Inc., sold and delivered 60 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

1.

Marwick's Pianos Inc. Traditional Format Income Statement For the month ended August 31
	$		$
Sales ( 60 x $ 3,000)			180,000
Cost of Goods Sold ( 60 x $ 1,486)			89,160
Gross Profit			90,840
Selling and Administrative Expenses:
Selling Expenses
Advertising Expense	962
Sales Salaries Expense	4,811
Sales Commission Expense ( 60 x $ 3,000 x 4 %)	7,200
Delivery Expense ( 60 x $ 60)	3,600
Utilities Expense	649
Depreciation Expense : Sales Facilities	4,968
Total Selling Expenses		22,190
Administrative Expenses
Executive Salaries Expense	13,449
Insurance Expense	708
Clerical Salaries Expense	2,533
Commission Expense ( 60 x $ 37)	2,220
Depreciation : Office Equipment	876
Total Administrative Expenses		19,786
Total Selling and Administrative Expenses			41,976
Net Operating Income			$ 48,864

2.

Marwick's Pianos Inc. Contribution Format Income Statement For the month ended August 31
Sales	$ 3,000		$ 180,000
Variable Costs
Cost of Goods Sold	$ 1,486	$ 89,160
Sales Commission Expense	120	7,200
Delivery Expense	60	3,600
Clerical Commission Expense	37	2,220
Total Variable Costs	1,703		102,180
Contribution Margin	1,297		77,820
Fixed Costs
Advertising Expense		962
Insurance Expense		708
Salaries Expense		20,793
Depreciation Expense		5,844
Utilities Expense		649
Total Fixed Costs			28,956
Net Operating Income			$ 48,864