Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer and sells them at the retail level. The pianos cost, on the average, $1,516 each from the manufacturer. Marwick’s Pianos, Inc., sells the pianos to its customers at an average price of $3,400 each. The selling and administrative costs that the company incurs in a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$940 per month
Sales salaries and commissions	$4,824 per month, plus 3% of sales
Delivery of pianos to customers	$63 per piano sold
Utilities	$664 per month
Depreciation of sales facilities	$5,036 per month
Administrative:
Executive salaries	$13,559 per month
Insurance	$710 per month
Clerical	$2,544 per month, plus $39 per piano sold
Depreciation of office equipment	$914 per month

During August, Marwick’s Pianos, Inc., sold and delivered 62 pianos.

Required:
1.	Prepare an income statement for Marwick’s Pianos, Inc., for August. Use the traditional format, with costs organized by function. (A "Net operating loss" should be entered as a negative number.)

         

2.

Prepare an income statement for Marwick’s Pianos, Inc., for August, this time using the contribution format, with costs organized by behavior. Show costs and revenues on both a total and a per unit basis down through contribution margin. (A "Net operating loss" should be entered as a negative number.)

Answer 1

Traditional income statement
Sales			(62*3400)			210800
Cost of goods sold			(62*1,516)			93992
Gross Margin						116808
Selling and administrative expenses
Selling expenses
Advertising					940
Sales salaries and commissions			(4824+210800*3%)		11148
Delivery of pianos			(63*62)		3906
Utilties					664
Depreciation of sales facilities					5,036
total selling expense					21694
Administrative expenses:
Executive salaries					13,559
insurance					710
Clercial	(2544 +39*62)				4962
Depreciation of office Equipment					914
total administrative expense					20,145
total selling and administrative expense						41,839
Net operating income						74,969
Cotribution format income statement
					total	per unit
Sales					210800	3400
Variable expenses
Sales salaries and commissions					6324	102
Delvery of pianos					3906	63
Clercial					2418	39
cost of goods sold					93992	1,516
total variable expense					106640	1720
Contribution margin					104160	1680
Fixed expenses
Advertising					940
Sales salries and commissions					4,824
utilities					664
depreciation of office equipment					914
Depreciation of sales facilities					5,036
Exceutive salaries					13,559
insurance					710
clercial					2,544
total fixed expense					29191
net operating income					74969