Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold:

Sales	$	240,000
Beginning merchandise inventory	$	16,000
Purchases	$	160,000
Ending merchandise inventory	$	8,000
Fixed selling expense	$	?
Fixed administrative expense	$	9,600
Variable selling expense	$	12,000
Variable administrative expense	$	?
Contribution margin	$	48,000
Net operating income	$	14,400

Required:

1. Prepare a contribution format income statement.

2. Prepare a traditional format income statement.

3. Calculate the selling price per unit.

4. Calculate the variable cost per unit.

5. Calculate the contribution margin per unit.

6. Which income statement format (traditional format or contribution format) would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales?

Prepare a contribution format income statement.

	Todrick Company Contribution Format Income Statement Beginning merchandise inventory Variable expenses: 0 Fixed expenses: 0

Prepare a traditional format income statement.

	Todrick Company Traditional Income Statement 0 Selling and administrative expenses: 0

3. Calculate the selling price per unit.

4. Calculate the variable cost per unit.

5. Calculate the contribution margin per unit.

	3. Selling price per unit 4. Variable cost per unit 5. Contribution margin per unit

Which income statement format (traditional format or contribution format) would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales?

	Traditional income statementradio button checked1 of 2 Contribution income statementradio button unchecked2 of 2

Answer 1

	Sales Revenue	240000
Less	Contribution margin	48000
	Total Variable Cost	192000

Todrick Company
Contribution Format Income Statement
Sales Revenue		240,000
Less: Variable expenses:
Variable Manufacture Cost or Variable Cost of Goods sold(16000+160000-8000)	168,000
Variable selling expense	12,000
Variable administrative expense (192000-168000-12000)	12,000
Total Variable Cost		192,000
Contribution margin		48,000
Less: Fixed expenses:
Fixed selling expense (48000-9600-14400)	24,000
Fixed administrative expense	9,600
Total Fixed Cost		33,600
Net operating income		14,400

Todrick Company
Traditional Income Statement
Sales Revenue		240,000
Less: Cost of Goods sold (16000+160000-8000)		168,000
Gross Profit		72,000
Selling and administrative expenses:
selling expense (12000+24000)	36000
administrative expense (12000+9600)	21600
Total Selling and administrative expenses		57600
Net operating income		14,400

Selling price per unit (240000/1000)	240
Variable cost per unit (192000/1000)	192
Contribution margin per unit (240-192)	48
Which income statement format (traditional format or contribution format) would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales?
Contribution income statement would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales.
Contribution income statement