Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,488 per unit and then sells them to retail customers for an average price of $2,200 each. The company’s selling and administrative costs for a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$	953 per month
Sales salaries and commissions	$	4,795 per month, plus 6% of sales
Delivery of pianos to customers	$	62 per piano sold
Utilities	$	645 per month
Depreciation of sales facilities	$	4,942 per month
Administrative:
Executive salaries	$	13,503 per month
Insurance	$	685 per month
Clerical	$	2,508 per month, plus $41 per piano sold
Depreciation of office equipment	$	897 per month

During August, Marwick’s Pianos, Inc., sold and delivered 59 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.

Answer 1

	Marwick's Pianos, Inc.
	Traditional Income Statement
	For the Month of August
Sales		129800
Cost of goods sold		87792
Gross margin		42008
Selling and administrative expenses:
Selling expenses:
Advertising	953
Sales salaries and commissions	12583
Utilities	645
Depreciation of sales facilities	4942
Delivery of pianos	3658
Total selling expenses	22781
Administrative expenses:
Insurance	685
Executive salaries	13503
Depreciation of office equipment	897
Clerical	4927
Total administrative expenses	20012
Total selling and administrative expenses		42793
Net operating loss		(785)
	Marwick's Pianos, Inc.
	Contribution Format Income Statement
	For the Month of August
	Total	Per Piano
Sales	129800	2200
Variable expenses:
Cost of goods sold	87792	1488
Clerical	2419	41
Delivery of pianos	3658	62
Sales commissions	7788	132
Total Variable expenses	101657	1723
Contribution margin	28143	477
Fixed expenses:
Advertising	953
Depreciation of sales facilities	4942
Utilities	645
Executive salaries	13503
Insurance	685
Depreciation of office equipment	897
Clerical	2508
Sales salaries	4795
Total Fixed expenses	28928
Net operating loss	(785)
Workings:
Sales = 2200*59 = $129800
Cost of goods sold = 1488*59 = $87792
Sales salaries and commissions = 4795+(129800*6%) = $12583
Delivery of pianos = 59*62 = $3658
Clerical = 2508+(59*41)= $4927