Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,505 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	$	4,785 per month, plus 4% of sales
Delivery of pianos to customers	$	61 per piano sold
Utilities	$	660 per month
Depreciation of sales facilities	$	5,001 per month
Administrative:
Executive salaries	$	13,511 per month
Insurance	$	682 per month
Clerical	$	2,467 per month, plus $41 per piano sold
Depreciation of office equipment	$	928 per month

During August, Marwick’s Pianos, Inc., sold and delivered 58 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