Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,493 per unit and then sells them to retail customers for an average price of $3,100 each. The company’s selling and administrative costs for a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$	964 per month
Sales salaries and commissions	$	4,771 per month, plus 6% of sales
Delivery of pianos to customers	$	62 per piano sold
Utilities	$	650 per month
Depreciation of sales facilities	$	4,981 per month
Administrative:
Executive salaries	$	13,516 per month
Insurance	$	710 per month
Clerical	$	2,467 per month, plus $42 per piano sold
Depreciation of office equipment	$	890 per month

During August, Marwick’s Pianos, Inc., sold and delivered 61 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

Marwick's Pianos Inc
Traditional Income Statement
For the Month of August
Sales revenue		$   189,100.00
Less: Cost of Goods sold		$       91,073.00
Gross Profit		$       98,027.00
Selling and Administrative Expenses
Selling Expenses
Advertising	$             964.00
Sales salaries and Commission	$       16,117.00
Delivery Expense	$          3,782.00
Utilities	$             650.00
Depreciation of sales facility	$          4,981.00
Total Selling Expenses	$       26,494.00
Administrative Expenses
Executive Salaries	$       13,516.00
Insurance	$             710.00
Clerical	$          5,029.00
Depreciation- Office Equipment	$             890.00
Total Administrative expenses	$       20,145.00
Total Selling and Administrative Expenses		$       46,639.00
Net income		$       51,388.00

Marwick's Pianos Inc
Contribution formal Income statement
For the Month of August
	Total	Per Piano
Sales	$    1,89,100.00	$         3,100.00
variable Expenses
Direct material cost	$       91,073.00	$         1,493.00
Variable Sales salaries and Commission	$       11,346.00	$             186.00
Delivery Expenses	$          3,782.00	$               62.00
Clerical	$          2,562.00	$               42.00
Total Variable Cost	$    1,08,763.00	$         1,783.00
Contribution Margin	$       80,337.00	$         1,317.00
Fixed costs
Advertising	$             964.00
Fixed Sales salaries and Commission	$          4,771.00
Utilities	$             650.00
Depreciation- Sales Facility	$          4,981.00
Executive salaries	$       13,516.00
Insurance	$             710.00
Clerical fixed cost	$          2,467.00
Depreciation- Office equipment	$             890.00
Total Fixed cost	$       28,949.00
Net Income	$       51,388.00