Question

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.

Answer 1

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