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 $55 per unit. The company also gathered the following cost estimates for the next quarter:

Cost	Cost Formula
Cost of good sold	$25 per unit sold
Advertising expense	$175,000 per quarter
Sales commissions	6% of sales
Shipping expense	$60,000 per quarter + $5.00 per unit sold
Administrative salaries	$85,000 per quarter
Insurance expense	$9,500 per quarter
Depreciation expense	$55,000 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

MILDEN COMPANY Contribution Format Income Statement For the Quarter
Sales              ( 31,000 units x $ 55)		$ 1,705,000
Variable expenses:
- Cost of goods sold            ( 31,000 units x $ 25)	$ 775,000
- Sales commissions          ($ 1,705,000 x 6% )	$ 102,300
- Shipping expense              ( 31,000 units x $ 5)	$ 155,000
Total variable expenses		($ 1,032,300)
Contribution margin		$ 672,700
Fixed expenses:
Advertising expense	$ 175,000
Shipping expense	$ 60,000
Administrative salaries	$ 85,000
Insurance expense	$ 9,500
Depreciation expense	$ 55,000
Total Fixed expenses		($ 384,500)
Net operating income		$ 288,200

MILDEN COMPANY Traditional Format Income Statement For the Quarter
Sales              ( 31,000 units x $ 55)		$ 1,705,000
Less: Cost of goods sold		($ 775,000)
Gross Margin		$ 930,000
Selling and administrative expenses:
Sales commissions	$ 102,300
Shipping expense ( $ 155,000 + $ 60,000)	$ 215,000
Advertising expense	$ 175,000
Administrative salaries	$ 85,000
Insurance expense	$ 9,500
Depreciation expense	$ 55,000
Total Selling and administrative expenses		($ 641,800)
Net operating income		$ 288,200