Question

Haaki Shop Inc. is a large retailer of surfboards. The company assembled the information shown below for the quarter ended May 31:

	Amount
Total sales revenue	$	1,600,000
Selling price per surfboard	$	400
Variable selling expense per surfboard	$	40
Variable administrative expense per surfboard	$	10
Total fixed selling expense	$	480,000
Total fixed administrative expense	$	450,000
Merchandise inventory, beginning balance	$	100,000
Merchandise inventory, ending balance	$	120,000
Merchandise purchases	$	360,000

Required:

1. Prepare a traditional income statement for the quarter ended May 31.

2. Prepare a contribution format income statement for the quarter ended May 31.

3. What was the contribution toward fixed expenses and profits for each surfboard sold during the quarter?

Answer 1

Number of surfboard sold = Sales revenue / Selling price per surfboard
Number of surfboard sold = $1,600,000 / $400
Number of surfboard sold = 4,000

Answer to Requirement 1:

Cost of goods sold = Merchandise inventory, beginning balance + Merchandise purchases - Merchandise inventory, ending balance
Cost of goods sold = $100,000 + $360,000 - $120,000
Cost of goods sold = $340,000

Selling expenses = Variable selling expense per surfboard * Number of surfboard sold + Fixed selling expense
Selling expenses = $40 * 4,000 + $480,000
Selling expenses = $640,000

Administrative expenses = Variable administrative expense per surfboard * Number of surfboard sold + Fixed administrative expense
Administrative expenses = $10 * 4,000 + $450,000
Administrative expenses = $490,000

Answer to Requirement 2:

Variable selling expenses = Variable selling expense per surfboard * Number of surfboard sold
Variable selling expenses = $40 * 4,000
Variable selling expenses = $160,000

Variable administrative expenses = Variable administrative expense per surfboard * Number of surfboard sold
Variable administrative expenses = $10 * 4,000
Variable administrative expenses = $40,000

Answer to Requirement 3:

Contribution margin per surfboard = Contribution margin / Number of surfboard sold
Contribution margin per surfboard = $1,060,000 / 4,000
Contribution margin per surfboard = $265