Question

Exercise 2-13 Traditional and Contribution Format Income Statements [LO2-6]

The Alpine House, Inc., is a large retailer of snow skis. The company assembled the information shown below for the quarter ended March 31:

		Amount
Total sales revenue	$	1,408,000
Selling price per pair of skis	$	440
Variable selling expense per pair of skis	$	48
Variable administrative expense per pair of skis	$	19
Total fixed selling expense	$	160,000
Total fixed administrative expense	$	125,000
Beginning merchandise inventory	$	75,000
Ending merchandise inventory	$	115,000
Merchandise purchases	$	310,000

Required:
1.	Prepare a traditional income statement for the quarter ended March 31.

     

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

     

3.	What was the contribution toward fixed expenses and profits for each pair of skis sold during the quarter? (Round your final answer to nearest whole dollar amount.)

     

Answer 1

Cost of goods sold = 75000+310000-115000 = $270000

Selling unit = 1408000/440 = 3200 Units

a) Traditional format income statement

Sales		1408000
Cost of goods sold		270000
Gross profit		1138000
Selling and administrative expense
Selling expense (3200*48+160000)	313600
Administrative expense (3200*19+125000)	185800
Total selling and administrative expense		499400
Net operating income		638600

b) Contribution format income statement

Sales		1408000
Variable Cost
Cost of goods sold	270000
Variable selling expense (3200*48)	153600
Variable administrative expense (3200*19)	60800
Total Variable expense		484400
Contribution margin		923600
Fixed cost
Fixed Selling expense	160000
Fixed Administrative expense	125000
Total Fixed cost		285000
Net operating income		638600

c) Contribution margin per pair = 440-48-19-(270000/3200) = $288.625 or $289