Question

Problem 1-19 Traditional and Contribution Format Income Statements [LO1-6]

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold:

Sales	$	285,000
Beginning merchandise inventory	$	19,000
Purchases	$	190,000
Ending merchandise inventory	$	9,500
Fixed selling expense	$	?
Fixed administrative expense	$	11,400
Variable selling expense	$	14,250
Variable administrative expense	$	?
Contribution margin	$	57,000
Net operating income	$	17,100

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?

Prepare a traditional format income statement.

	Todrick Company Traditional Income Statement 0 Selling and administrative expenses: 0

Answer 1

	Contribution format income statement
					Amount	amount
	Sales					285,000
	less:Variable expenses
	Cost of goods sold				199500
	Variable selling expense				14,250
	variable administrative expense				14,250	228,000
	contribution margin					57,000
	less:Fixed expense
	fixed administrative expense				11,400
	fixed selling expense				28,500	39,900
	net operating income					17,100
	Traditional income statement
	sales					285,000
	less cost of goods sold					199500
	Gross profit					85,500
	Selling and administrative expense
	Selling expense				42,750
	Administrative expense				25,650	68,400
	Net operating income					17,100
	3	Selling price per unit			285
	4	Variable cost per unit			228
	5	Contribution margin per unit			57
	6)	Contribution format