Question

The Alpine House, Inc., is a large retailer of snow skis. The company assembled the information shown below for the quarter ended March 31:

		Amount
Sales	$	1,148,000
Selling price per pair of skis	$	410
Variable selling expense per pair of skis	$	47
Variable administrative expense per pair of skis	$	16
Total fixed selling expense	$	155,000
Total fixed administrative expense	$	115,000
Beginning merchandise inventory	$	70,000
Ending merchandise inventory	$	105,000
Merchandise purchases	$	300,000

Required:

1. Prepare a traditional income statement for the quarter ended March 31.

2. Prepare a contribution format income statement for the quarter ended March 31.

3. What was the contribution margin per unit?

Prepare a traditional income statement for the quarter ended March 31.

	The Alpine House, Inc. Traditional Income Statement Selling and administrative expenses: 0

Prepare a contribution format income statement for the quarter ended March 31.

	The Alpine House, Inc. Contribution Format Income Statement Variable expenses: 0 Fixed expenses: 0

What was the contribution margin per unit? (Round your final answer to nearest whole dollar.)

	Contribution margin per unit

Answer 1

The main difference between the traditional income statement and the variable format income statement is that the traditional income statement shows the gross margin whereas the variable format income statement shows the contribution margin.

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The Alpine House, Inc.
Traditional Income Statement
Sales		$1,148,000
Cost of Goods Sold                  [Refer working note 2]		$265,000
Gross Margin                        [Sales - Cost of goods sold]		$883,000
Selling and administrative expenses:
Selling expenses              [(2,800 skies x $47) + $155,000]	$286,600
Administrative expense    [(2,800 skies x $16) + $115,000]	$159,800
		$446,400
Net Operating Income   [Gross margin - Selling and administrative expenses]		$436,600

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The Alpine House, Inc.
Contribution Format Income Statement
Sales		$1,148,000
Variable expenses:
Cost of Goods Sold                  [Refer working note 2]	$265,000
Selling expenses              (2,800 skies x $47)	$131,600
Administrative expense    (2,800 skies x $16)	$44,800
		$441,400
Contribution Margin                        [Sales - Variable expenses]		$706,600
Selling and administrative expenses:
Selling expenses	$155,000
Administrative expense	$115,000
		$270,000
Net Operating Income   [Gross margin - Selling and administrative expenses]		$436,600

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3. Computation of Contribution Margin per unit
a. Total Contribution Margin                   [Refer variable format income statement]	$706,600
b. Number of pair of skies sold                [Refer working note 1]	2800
Contribution Margin per unit                    (a / b)        [Rounded to the nearest whole dollar]	$252

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Working note 1 - Computation of number of skies sold:
a. Sale	$1,148,000
b. Selling price per skis	$410
Number of skies sold (a / b)	2800

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Working note 2 - Computation of cost of goods sold:
Beginning merchandise inventory	$70,000
Add: Merchandise inventory purchased	$300,000
Cost of Merchandise inventory available to be sold	$370,000
Less: Ending merchandise inventory	$105,000
Cost of Goods Sold	$265,000