Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: Sales $ 405,000 Beginning merchandise inventory $ 27,000 Purchases $ 270,000 Ending merchandise inventory $ 13,500 Fixed selling expense $ ? Fixed administrative expense $ 16,200 Variable selling expense $ 20,250 Variable administrative expense $ ? Contribution margin $ 81,000 Net operating income $ 24,300

1. Prepare a contribution format income statement.

2. Prepare a traditional format income statement.

3. Calculate the selling price per unit.

4. Calculate the variable cost per unit.

5. Calculate the contribution margin per unit.

6. Which income statement format (traditional format or contribution format) would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales?

Answer 1

Solution 1:

Solution 2:

Solution 3:

Selling price per unit = $405000/1000 = $405 per unit

Solution 4:

Variable cost per units = total variable expense/ units = $324000/1000 = $324 per unit

Solution 5:

Contribution margin per unit = $405 - $324 = $81 per unit

Solution 6:

Contribution format income statement would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales.

Answer 2

Answer:

prepare contribution format income statement

Sales	405000
Cost of goods sold (27000+270000+13500)	310500
Variable selling expenses	20250
Variable administrative expenses (405000-310500-20250-81000)	(6750)
Total direct variable and selling expenses	324000
Contribution margin	81000
Fixed and selling expenses (81000-16200-24300)	40500
Fixed administrative expenses	16200
Total fixed expenses
Net operating income	24300

2. Traditional income statement

Sales	405000
Cost of goods sold	310500
Gross profit	94500
Selling expenses(20250+40500)	60750
Administrative expenses (-6750+16200)	9450
Total direct and variable expenses	70200
Net operating income	24300

3.. selling price per unit

=Sales/total sales unit

= 405000/1000=405 per unit

4. Variable cost per unit

=Total direct variable and selling expenses/sales unit

=324000/1000=324 per unit

5.Contribution margin per unit

=81000/1000=81 per unit

6. A contribution margin income statement is not issued to outside third parties and is more useful to internal management in determine how profit will change in accordance with the change in sales volume.