Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: Sales $ 435,000 Beginning merchandise inventory $ 29,000 Purchases $ 290,000 Ending merchandise inventory $ 14,500 Fixed selling expense $ ? Fixed administrative expense $ 17,400 Variable selling expense $ 21,750 Variable administrative expense $ ? Contribution margin $ 87,000 Net operating income $ 26,100 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

Cost of Goods Sold = Beginning merchandise inventory + Purchases - Ending merchandise inventory
Cost of Goods Sold = $29,000 + $290,000 - $14,500
Cost of Goods Sold = $304,500

Net Operating Income = Contribution Margin - Fixed selling expense - Fixed administrative expense
$26,100 = $87,000 - Fixed selling expense - $17,400
Fixed selling expense = $43,500

Contribution Margin = Sales - Cost of Goods Sold - Variable selling expense - Variable administrative expense
$87,000 = $435,000 - $304,500 - $21,750 - Variable administrative expense
Variable administrative expense = $21,750

Answer 1.

Answer 2.

Answer 3.

Sales = $435,000
Sales Volume = 1,000 units

Selling Price = Sales / Sales Volume
Selling Price = $435,000 / 1,000
Selling Price = $435.00

Answer 4.

Variable Cost = $348,000
Sales Volume = 1,000 units

Variable Cost per unit = Variable Cost / Sales Volume
Variable Cost per unit = $348,000 / 1,000
Variable Cost per unit = $348.00

Answer 5.

Contribution Margin per unit = Selling Price - Variable Cost per unit
Contribution Margin per unit = $435.00 - $348.00
Contribution Margin per unit = $87.00

Answer 6.

Contribution Format income statement is more useful for manager to analyze the change of net operating income due to change in sales volume as variable cost and fixed costs are separately shown.