Question

Milden Company is a merchandiser that plans to sell 25,000 units during the next quarter at a selling price of $52 per unit. The company also gathered the following cost estimates for the next quarter:

Cost	Cost Formula
Cost of good sold	$22 per unit sold
Advertising expense	$172,000 per quarter
Sales commissions	5% of sales
Shipping expense	$54,000 per quarter + $6.00 per unit sold
Administrative salaries	$82,000 per quarter
Insurance expense	$9,200 per quarter
Depreciation expense	$52,000 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.

Prepare a contribution format income statement for the next quarter.

	Milden Company Contribution Format Income Statement For the Next Quarter Sales Variable expenses: Cost of goods sold Sales commission Shipping expense Advertising expense Shipping expense Total variable expenses 0 Contribution margin Fixed expenses: Advertising expense Shipping expense Administrative salaries Insurance expense Depreciation expense Total fixed expenses 0 Net operating income

	Milden Company Traditional Format Income Statement For the Next Quarter Sales Cost of goods sold Gross margin Selling and administrative expenses: Advertising expense Sales commission Shipping expense Advertising expense Administrative salaries Insurance expense Depreciation expense Shipping expense Total selling and administrative expenses 0 Net operating income

Answer 1

• All working forms part of the answer
• Requirement 1: Contribution format Income Statement

Sales	[25000 units x $52]	$     13,00,000.00
Less: Variable costs
Cost of Goods Sold	[25000 units x $22]	$        5,50,000.00
Sales Commission	[25000 units x $52 x 5%]	$           65,000.00
Shipping expenses	[25000 units x $6]	$        1,50,000.00
Total Variable cost		$        7,65,000.00
Contribution Margin		$        5,35,000.00
Less: Fixed Costs
Advertising expense	$    1,72,000.00
Shipping expenses	$        54,000.00
Administrative salaries	$        82,000.00
Insurance expense	$          9,200.00
Depreciation expense	$        52,000.00
Total Fixed Costs		$        3,69,200.00
Net Income		$        1,65,800.00

• Requirement 2: Traditional Format Income Statement

Workings for amount can be seen in Requirement 1

Milden Company
Traditional Format Income Statement
For the Next Quarter
Sales		$ 13,00,000.00
Cost of goods sold		$   5,50,000.00
Gross margin		$   7,50,000.00
Selling and administrative expenses:
Advertising expense	$    1,72,000.00
Sales commission	$      65,000.00
Shipping expense	$    1,50,000.00
Administrative salaries	$      82,000.00
Insurance expense	$        9,200.00
Depreciation expense	$      52,000.00
Shipping expense	$      54,000.00
Total selling and administrative expenses		$   5,84,200.00
Net operating income		$     1,65,800.00