Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer and sells them at the retail level. The pianos cost, on the average, $1,510 each from the manufacturer. Marwick’s Pianos, Inc., sells the pianos to its customers at an average price of $2,800 each. The selling and administrative costs that the company incurs in a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$	933 per month
Sales salaries and commissions	$	4,822 per month, plus 4% of sales
Delivery of pianos to customers	$	58 per piano sold
Utilities	$	645 per month
Depreciation of sales facilities	$	5,091 per month
Administrative:
Executive salaries	$	13,547 per month
Insurance	$	682 per month
Clerical	$	2,475 per month, plus $39 per piano sold
Depreciation of office equipment	$	922 per month

During August, Marwick’s Pianos, Inc., sold and delivered 61 pianos.

Required:

1. Prepare an income statement for Marwick’s Pianos, Inc., for August. Use the traditional format, with costs organized by function. (A "Net operating loss" should be entered as a negative number.)

Marwick's Pianos, Inc.
Traditional Income Statement
For the Month of August
Selling and administrative expenses:
Selling expenses:
Total selling expenses	0
Administrative expenses:
Total administrative expenses	0
Total selling and administrative expenses		0

2. Prepare an income statement for Marwick’s Pianos, Inc., for August, this time using the contribution format, with costs organized by behavior. Show costs and revenues on both a total and a per unit basis down through contribution margin. (A "Net operating loss" should be entered as a negative number.)

Answer 1

Traditional income statement
Sales			(61*2800)			170800
Cost of goods sold			(61*1,510)			92110
Gross Margin						78690
Selling and administrative expenses
Selling expenses
Advertising					933
Sales salaries and commissions			(4,822+170800*4%)		11654
Delivery of pianos			(61*58)		3538
Utilties					645
Depreciation of sales facilities					5,091
total selling expense					21861
Administrative expenses:
Executive salaries					13,547
insurance					682
Clercial	(2,475+61*39)				4854
Depreciation of office Equipment					922
total administrative expense					20,005
total selling and administrative expense						41,866
Net operating income						36,824
Cotribution format income statement
					total	per unit
Sales					170800	2,800
Variable expenses
Sales salaries and commissions					6832	112
Delvery of pianos					3538	58
Clercial					2379	39
cost of goods sold					92110	1,510
total variable expense					104859	1719
Contribution margin					65941	1081
Fixed expenses
Advertising					933
Sales salries and commissions					4,822
utilities					645
depreciation of office equipment					922
Depreciation of sales facilities					5,091
Exceutive salaries					13,547
insurance					682
clercial					2,475
total fixed expense					29117
net operating income					36824