Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,510 per unit and then sells them to retail customers for an average price of $2,600 each. The company’s selling and administrative costs for a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$	937 per month
Sales salaries and commissions	$	4,819 per month, plus 5% of sales
Delivery of pianos to customers	$	62 per piano sold
Utilities	$	669 per month
Depreciation of sales facilities	$	5,040 per month
Administrative:
Executive salaries	$	13,523 per month
Insurance	$	691 per month
Clerical	$	2,491 per month, plus $37 per piano sold
Depreciation of office equipment	$	898 per month

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

Solution 1:

Traditional Income Statement - Marwick Pianos Inc.
Particulars	Details	Amount
Sales (2600*62)		$161,200.00
Less: Cost of Goods Sold (1510*62)		$93,620.00
Gross Profit		$67,580.00
Sellling Expenses:
Advertising	$937.00
Sales Salaries and Commissions (4819 + 5% of 161200)	$12,879.00
Delivery of Pianos to customers (62*62)	$3,844.00
Utilities	$669.00
Depreciation of Sales Facilities	$5,040.00	$23,369.00
Administrative Expenses:
Executive Salaries	$13,523.00
Insurance	$691.00
Clerical (2491 + 37*62)	$4,785.00
Depreciation of office equipment	$898.00	$19,897.00
Net Income		$24,314.00

Solution 2:

Contribution margin Income Statement - Marwick Pianos Inc.
Particulars	Per Unit	Total
Sales	$2,600.00	$161,200.00
Variable Cost:
Purchase Cost	$1,510.00	$93,620.00
Sales Commission	$130.00	$8,060.00
Delivery of Pianos to customers (62*62)	$62.00	$3,844.00
Clerical Expense	$37.00	$2,294.00
Contribution	$861.00	$53,382.00
Fixed Cost:
Advertising		$937.00
Sales Salaries		$4,819.00
Utilities		$669.00
Depreciation of Sales Facilities		$5,040.00
Executive Salaries		$13,523.00
Insurance		$691.00
Clerical		$2,491.00
Depreciation of office equipment		$898.00
Net Income		$24,314.00