Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,513 per unit and then sells them to retail customers for an average price of $2,200 each. The company’s selling and administrative costs for a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$	962 per month
Sales salaries and commissions	$	4,830 per month, plus 5% of sales
Delivery of pianos to customers	$	62 per piano sold
Utilities	$	662 per month
Depreciation of sales facilities	$	5,068 per month
Administrative:
Executive salaries	$	13,579 per month
Insurance	$	690 per month
Clerical	$	2,539 per month, plus $35 per piano sold
Depreciation of office equipment	$	942 per month

During August, Marwick’s Pianos, Inc., sold and delivered 62 pianos.

Required:

1. Prepare a traditional format income statement for August.
2. Prepare a contribution format income statement for August. Show costs and revenues on both a total and a per unit basis down through contribution margin.

Answer 1