Question

Problem 1-25 Traditional and Contribution Format Income Statements [LO1-6] Milden Company is a merchandiser that plans to sell 31,000 units during the next quarter at a selling price of $58 per unit. The company also gathered the following cost estimates for the next quarter: Cost Cost Formula Cost of good sold $28 per unit sold Advertising expense $178,000 per quarter Sales commissions 5% of sales Shipping expense $48,000 per quarter + $5.00 per unit sold Administrative salaries $88,000 per quarter Insurance expense $9,800 per quarter Depreciation expense $58,000 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
	For the Next Quarter
	Sales		1,798,000
	Variable expenses:
	Cost of goods sold	868,000
	Sales commission	89,900
	Shipping expense	155,000
	Total variable expenses		1,112,900
	Contribution margin		685,100
	Fixed expenses:
	Advertising expense	178,000
	Shipping expense	48,000
	Administrative salaries	88,000
	Insurance expense	9,800
	Depreciation expense	58,000
	Total fixed expenses		381,800
	Net operating income		303,300
Working Notes:
	Milden Company
	Contribution Format Income Statement
See Notes: Below	For the Next Quarter
a	Sales		1,798,000
	[31,000 X $58 ]
	Variable expenses:
b	Cost of goods sold	868,000
	[31,000 X $28 ]
c	Sales commission	89,900
	[1,798,000 x 5% ]
d	Shipping expense	155,000
	[31000 x 5 ]
e=b+c+d	Total variable expenses		1,112,900
f =a-e	Contribution margin		685,100
	Fixed expenses:
g	Advertising expense	178,000
h	Shipping expense	48,000
i	Administrative salaries	88,000
j	Insurance expense	9,800
k	Depreciation expense	58,000
l=g+h+i+j+k	Total fixed expenses		381,800
m=f-l	Net operating income		303,300
2.	Milden Company
	Traditional Format Income Statement
	For the Next Quarter
	Sales		1,798,000
	Cost of goods sold		868,000
	Gross margin		930,000
	Selling and administrative expenses:
	Advertising expense	178,000
	Administrative salaries	88,000
	Insurance expense	9,800
	Depreciation expense	58,000
	Sales commission	89,900
	Shipping expense	203,000
	Total Selling and administrative expenses:		626,700
	Net operating income		303,300
Working Notes:
	Milden Company
	Traditional Format Income Statement
	For the Next Quarter
a	Sales		1,798,000
b	Cost of goods sold		868,000
c=a-b	Gross margin		930,000
	Selling and administrative expenses:
d	Advertising expense	178,000
e	Administrative salaries	88,000
f	Insurance expense	9,800
g	Depreciation expense	58,000
h	Sales commission	89,900
i	Shipping expense	203,000
	[31000 x 5 + 48000]
j=d+e+f+g+h+i	Total Selling and administrative expenses:		626,700
k=c-j	Net operating income		303,300
Please feel free to ask if anything about above solution in comment section of the question.