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. PREPARE CONTRIBUTION FORMAT INCOME STATEMENT :
Sales (31000*58)		$       1,798,000
Less: Variable expenses
Cost of good sold (31000*28)	$     (868,000)
Sales commision (1798000*5%)	$       (89,900)
Shipping expenses (31000*5)	$     (155,000)	$     (1,112,900)
Contribution margin		$         685,100
Less: Fixed expenses
Advertising expenses	$     (178,000)
Shipping expense	$       (48,000)
Administrative salaries	$       (88,000)
Insurance expenses	$         (9,800)
Depreciation expenses	$       (58,000)	$        (381,800)
Net income		$        303,300
B) TRADITIONAL FORMAT INCOME STATEMENT :
Sales (31000*58)		$       1,798,000
Less: Cost of goods sold (31000*28)		$        (868,000)
Gross profit		$         930,000
Less: Operating expenses
Advertising expenses	$     (178,000)
Sales commision (1798000*5%)	$       (89,900)
Shipping expenses (31000*5+48000)	$     (203,000)
Administrative salaries	$       (88,000)
Insurance expenses	$         (9,800)
Depreciation	$       (58,000)	$         626,700
Net income		$        303,300