Question

The Alpine House, Inc., is a large retailer of snow skis. The company assembled the information shown below for the quarter ended March 31: Amount Sales $ 1,008,000 Selling price per pair of skis $ 420 Variable selling expense per pair of skis $ 48 Variable administrative expense per pair of skis $ 16 Total fixed selling expense $ 150,000 Total fixed administrative expense $ 125,000 Beginning merchandise inventory $ 70,000 Ending merchandise inventory $ 115,000 Merchandise purchases $ 295,000 Required: 1. Prepare a traditional income statement for the quarter ended March 31. 2. Prepare a contribution format income statement for the quarter ended March 31. 3. What was the contribution margin per unit?

Answer 1

Income statements under both the methods ultimately result in net profit or loss. The difference is in the disclosure of costs. Under traditional method, fixed and variable cost of manufacturing i.e. cost of goods sold is redux=ced from sales to arrive at Gross Margin and then selling expenses are reduced to arrive at Net Margin. Under contribution margin method, total variable cost (manufacturing + selling) is reduced to arrive at contribution. The fixed cost is reduced to arrive at Net Margin.