Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: Sales $ 345,000 Beginning merchandise inventory $ 23,000 Purchases $ 230,000 Ending merchandise inventory $ 11,500 Fixed selling expense $ ? Fixed administrative expense $ 13,800 Variable selling expense $ 17,250 Variable administrative expense $ ? Contribution margin $ 69,000 Net operating income $ 20,700 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?

Answer 1

Requirement 1

Todrick Company
Contribution margin Income statement
Sales		$ 345,000
Less: Variable costs
Direct material used	$ 241,500
Variable selling expenses	$ 17,250
Variable administrative expenses	$ 17,250
Total Variable cost		$ 276,000
Contribution margin		$ 69,000
Less: Fixed Costs
Fixed selling expenses'	$ 34,500
Fixed administrative expenses	$ 13,800
Total Fixed Costs		$ 48,300
Net Income		$ 20,700

Requirement 2

Todrick Company
Traditional Format Income Statement
Sales		$ 345,000
Cost of goods sold		$ 241,500
Gross margin		$ 103,500
Selling and administrative expenses:
Selling expenses	$ 51,750
Administrative expenses	$ 31,050
Total selling and administrative expenses		$ 82,800
Net operating income		$ 20,700

Requirement 3

Selling price =$345

Requirement 4

Variable cost per unit= 276

Requirement 5

Contribution margin per unit= $69

Requirement 6

Contribution format income would be more useful

Working

Sales	$ 345,000
Units sold	$ 1,000
Sales price (345000/1000)	$ 345	Requirement 3 answer
Total variable cost	$ 276,000
Variable cost per unit (276000/1000)	276	Requirement 4 answer
Contribution margin per unit (345-276)	$ 69	Requirement 5 answer