Question

Home Entertainment is a small, family-owned business that purchases LCD televisions from a reputable manufacturer and sells them at the retail level. The televisions sell, on average, for $2,290 each. The average cost of a television from the manufacturer is $1,400. Home Entertainment has always kept careful accounting records, and the costs that it incurs in a typical month are as follows: Costs Cost Formula Selling: Advertising $ 1,400 per month Delivery of televisions $ 42 per television sold Sales salaries and commissions $ 3,090 per month, plus 10% of sales Utilities $ 550 per month Depreciation of sales facilities $ 3,170 per month Administrative: Executive salaries $ 8,600 per month Depreciation of office equipment $ 960 per month Clerical $ 1,790 per month, plus $41 per television sold Insurance $ 710 per month During April, the company sold and delivered 190 televisions. Required: 1. Prepare an income statement for April using the traditional format with costs organized by function. 2. Prepare an income statement for April, this time using the contribution format with costs organized by behaviour. Show costs and revenues on both a total and a per unit basis down through contribution margin.

Answer 1

1.

Particulars	Total
Sales	4,35,100
Selling expenses
Advertising	1,400
Delivery of televisions	7,980
Sales salaries	3,090
Sales commission	43,510
Depreciation of sales facilities	3,170
Total selling expense	59,150
Adminstration expenses
Utilities	550
Executive salaries	8,600
Depreciation of office equipment	960
Clerical $ 1,790 per month, plus $41 per television sold	9,580
Insurance	710
Total administrative expense	20,400
Total selling and administrative expense	79,550
Net income	3,55,550

2.

Particulars	Per unit	Total
Sales	2,290	4,35,100
Varible expenses
Delivery of televisions	42	7,980
Sales commission	229	43,510
Clerical variable expenses	41	7,790
Total variable expenses	312	59,280
Contribution margin	1,978	3,75,820
Fixed expenses
Clerical fixed expenses		1,790
Advertising		1,400
Sales salaries		3,090
Depreciation of sales facilities		3,170
Utilities		550
Executive salaries		8,600
Depreciation of office equipment		960
Insurance		710
Total fixed expenses		20,270
Net income		3,55,550