Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold:

Sales	$	360,000
Beginning merchandise inventory	$	24,000
Purchases	$	240,000
Ending merchandise inventory	$	12,000
Fixed selling expense	$	?
Fixed administrative expense	$	14,400
Variable selling expense	$	18,000
Variable administrative expense	$	?
Contribution margin	$	72,000
Net operating income	$	21,600

Required:

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

	Beginning inventory	24000
Add	Purchases	240000
	Cost of goods available for sale	264000
Less	Ending inventory	12000
	Cost of goods sold	252000
			Amount	Per unit
1	Sales		360000	360
	Variable expense
	Cost of goods sold	252000
	Variable selling expense	18000
	Variable administrative	18000
	Total variable expense		288000	288
	Contribution margin		72000	72
	Fixed expense
	Fixed selling expense	14400
	Fixed administrative expense	36000
	Total fixed expense		50400
	Net operating income		21600
2	Traditional income statement
	Net sales		360000
	Cost of goods sold		252000
	Gross profit		108000
	Operating expense
	Variable selling expense	18000
	Variable administrative	18000
	Fixed selling expense	14400
	Fixed administrative expense	36000	86400
	Net operating income		21600
3	Selling price per unit	360	(360000/1000)
4	Variable cost per unit	288	(288000/1000)
5	Contribution margin per unit	72	72000/1000