Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer and sells them at the retail level. The pianos cost, on the average, $1,506 each from the manufacturer. Marwick’s Pianos, Inc., sells the pianos to its customers at an average price of $3,300 each. The selling and administrative costs that the company incurs in a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$941 per month
Sales salaries and commissions	$4,793 per month, plus 5% of sales
Delivery of pianos to customers	$59 per piano sold
Utilities	$631 per month
Depreciation of sales facilities	$5,060 per month
Administrative:
Executive salaries	$13,554 per month
Insurance	$720 per month
Clerical	$2,532 per month, plus $42 per piano sold
Depreciation of office equipment	$925 per month

During August, Marwick’s Pianos, Inc., sold and delivered 56 pianos.

Required:
1.	Prepare an income statement for Marwick’s Pianos, Inc., for August. Use the traditional format, with costs organized by function. (A "Net operating loss" should be entered as a negative number.)

        

2.	Prepare an income statement for Marwick’s Pianos, Inc., for August, this time using the contribution format, with costs organized by behavior. 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.)

     

Answer 1

Traditional Income Statement
Sales		56*3,300)					184800
Cost of goods sold		(56*1,506)					84336
Gross margin							100464
Selling and administrative expense
Selling expenses:
Advertising						941
Sales salaries and commission			(4793+56*184800*5%)			14033
Delivery of pianos			(56*59)			3304
Utilities						631
Depreciation of sales facilities						5,060
Total selling expense							23,969
Administrative expenses
Executive salaries						13,554
Insurance						720
Clerical			(2532+56*42)			4884
Depreciation of office equipment						925
Total administrative expense							20,083
total selling And administrative expense							44,052
Net operating income							56,412
Contribution Format income statement
						total	per piano
Sales						184800	3,300
Variable expenses
Sales salaries and commission						9240	165
Delivery of pianos						3304	59
Clerical						2352	42
Cost of good sold						84336	1,506
total variable expenses						99232	1772
Contribution margin						85568	1,528
Fixed expenses:
Advertising						941
Sales salaries and commission						4,793
Utilities						631
Depreciation of office equipment						925
Depreciation of sales Facilities						5,060
Executive salaries						13,554
insurance						720
clerical						2,532
total fixed expenses						29,156
Net operating income						56,412