Question

In: Accounting

Milden Company is a merchandiser that plans to sell 37,000 units during the next quarter at...

Milden Company is a merchandiser that plans to sell 37,000 units during the next quarter at a selling price of $55 per unit. The company also gathered the following cost estimates for the next quarter:

Cost Cost Formula
Cost of good sold $27 per unit sold
Advertising expense $184,000 per quarter
Sales commissions 5% of sales
Shipping expense $24,000 per quarter + $5.00 per unit sold
Administrative salaries $94,000 per quarter
Insurance expense $10,400 per quarter
Depreciation expense $64,000 per quarter

Required:

1. Prepare a contribution format income statement for the next quarter.

2. Prepare a traditional format income statement for the next quarter.

Solutions

Expert Solution

Solution 1:

Milden Company
Contribution format Income Statement
Sales (37000*$55) $20,35,000
Variable Expenses:
Cost of goods sold (37000*$27) $9,99,000
Sales Commission (5% of sales) $1,01,750
Shipping Expense (37000*$5) $1,85,000
Total Variable Expenses $12,85,750
Contribution Margin $7,49,250
Fixed Expenses:
Advertising Expense $1,84,000
Shipping Expense (Fixed portion) $24,000
Administrative Salaries $94,000
Insurance Expense $10,400
Depreciation Expense $64,000
Total Fixed Expenses $3,76,400
Net Operating Income $3,72,850

Solution 2:

Milden Company
Traditional format Income Statement
Sales (37000*$55) $20,35,000
Less: Cost Of Goods sold (37000*27) $9,99,000
Gross Profit $10,36,000
Less: Selling and Administrative Expenses:
Advertising Expense $1,84,000
Sales Commission $1,01,750
Shipping Expense [$24000+($5*37000)] $2,09,000
Administrative Salaries $94,000
Insurance Expense $10,400
Depreciation Expense $64,000
Total expenses $6,63,150
Net Operating Income $3,72,850

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