Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,492 per unit and then sells them to retail customers for an average price of $2,500 each. The company’s selling and administrative costs for a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$	935 per month
Sales salaries and commissions	$	4,808 per month, plus 5% of sales
Delivery of pianos to customers	$	57 per piano sold
Utilities	$	647 per month
Depreciation of sales facilities	$	5,043 per month
Administrative:
Executive salaries	$	13,511 per month
Insurance	$	699 per month
Clerical	$	2,470 per month, plus $42 per piano sold
Depreciation of office equipment	$	871 per month

During August, Marwick’s Pianos, Inc., sold and delivered 63 pianos.

Required:

1. Prepare a traditional format income statement for August.
2. Prepare a contribution format income statement for August. Show costs and revenues on both a total and a per unit basis down through contribution margin.

Required 1

Prepare a traditional format income statement for August. (A "Net operating loss" should be entered as a negative number.)

	Marwick's Pianos, Inc. Traditional Income Statement For the Month of August Selling and administrative expenses: Selling expenses: Total selling expenses Administrative expenses: Total administrative expenses Total selling and administrative expenses

Required 2

Prepare a contribution format income statement for August. Show costs and revenues on both a total and a per unit basis down through contribution margin. (A "Net operating loss" should be entered as a negative number.)

	Marwick's Pianos, Inc. Contribution Format Income Statement For the Month of August Total Per Piano Variable expenses: Total variable expenses Contribution margin Fixed expenses: Total fixed expenses

Answer 1

1
Traditional Income Statement
Sales		157500	=63*2500
Cost of goods sold		93996	=63*1492
Gross Margin		63504
Selling and Administrative expenses:
Selling expenses:
Advertising	935
Sales salaries and commissions	12683		=4808+(157500*5%)
Delivery of pianos	3591		=57*63
Utilities	647
Depreciation of sales facilities	5043
Total selling expenses	22899
Administrative expenses:
Executive salaries	13511
Insurance	699
Clerical	5116		=2470+(42*63)
Depreciation of office equipment	871
Total Administrative expenses	20197
Total Selling and Administrative expenses		43096
Net operating income		20408
2
Contribution format Income Statement
	Total	Per Piano
Sales	157500	2500
Variable expenses:
Sales salaries and commissions	7875	125
Delivery of pianos	3591	57
Clerical	2646	42
Cost of goods sold	93996	1492
Total Variable expenses	108108	1716
Contribution margin	49392	784
Fixed expenses:
Advertising	935
Sales salaries and commissions	4808
Utilities	647
Depreciation of office equipment	871
Depreciation of sales facilities	5043
Executive salaries	13511
Insurance	699
Clerical	2470
Total Fixed expenses	28984
Net operating income	20408