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 $1,580 each. The average cost of a television from the manufacturer is $1,050.

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	$	1,145	per month
Delivery of televisions	$	42	per television sold
Sales salaries and commissions	$	3,500	per month, plus 5% of sales
Utilities	$	480	per month
Depreciation of sales facilities	$	3,080	per month
Administrative:
Executive salaries	$	11,800	per month
Depreciation of office equipment	$	530	per month
Clerical	$	2,020	per month, plus $57 per television sold
Insurance	$	780	per month

  

During April, the company sold and delivered 232 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	Prepare an income statement for April using the traditional format with costs organized by function.
	Sales	$	366560	(232 tv*1580$)
	COGS	$	243600	(232 tv*1050$)
	Gross Margin (A)	$	122960
	Selling and Administrative Expenses:	$
	Selling:	$
	Advertising	$	1,145
	Delivery of televisions	$	9744	(42*232tv)
	Sales salaries and commissions (Fixed)	$	3,500
	Sales salaries and commissions (Variable)	$	18,328	(5%*366560)
	Utilities	$	480	per month
	Depreciation of sales facilities	$	3,080	per month
	Total Selling Expense (B)	$	36,277
	Administrative:	$
	Executive salaries	$	11,800	per month
	Depreciation of office equipment	$	530	per month
	Clerical (Fixed)	$	2,020
	Clerical (Variable)	$	13,224	( $57 per television sold)
	Insurance	$	780	per month
	Total Admn Expense ©	$	28,354
	Net Operating Income (A-B-C)	$	58,329
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.
			Total	Total	Per unit	Per unit
	Sales			366,560.00		1,580.00
	Variable Expenses:
	COGS ($1050 per TV)		243,600.00		1,050.00
	Delivery of televisions ($42/TV)		9,744.00		42.00
	Sales salaries and commissions (5% of sales)		18,328.00		79.00
	Clerical ( $57 per television sold)		13,224.00	284,896.00	57.00	1,228.00
	Contribution			81,664.00		352.00
	Fixed Expense
	Advertising		1,145.00		4.94
	Sales salaries and commissions (Fixed)		3,500.00		15.09
	Utilities		480.00		2.07
	Depreciation of sales facilities		3,080.00		13.28
	Executive salaries		11,800.00		50.86
	Depreciation of office equipment		530.00		2.28
	Clerical (Fixed)		2,020.00		8.71
	Insurance		780.00	23,335.00	3.36	100.58
	Ne Operating Income			58,329.00		251.42