Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,496 per unit and then sells them to retail customers for an average price of $2,300 each. The company’s selling and administrative costs for a typical month are presented below: Costs Cost Formula Selling: Advertising $ 956 per month Sales salaries and commissions $ 4,828 per month, plus 3% of sales Delivery of pianos to customers $ 59 per piano sold Utilities $ 640 per month Depreciation of sales facilities $ 5,046 per month Administrative: Executive salaries $ 13,522 per month Insurance $ 697 per month Clerical $ 2,549 per month, plus $41 per piano sold Depreciation of office equipment $ 937 per month During August, Marwick’s Pianos, Inc., sold and delivered 64 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

1
Traditional Income Statement
Sales		147200	=64*2300
Cost of goods sold		95744	=64*1496
Gross Margin		51456
Selling and Administrative expenses:
Selling expenses:
Advertising	956
Sales salaries and commissions	9244		=4828+(147200*3%)
Delivery of pianos	3776		=59*64
Utilities	640
Depreciation of sales facilities	5046
Total selling expenses	19662
Administrative expenses:
Executive salaries	13522
Insurance	697
Clerical	5173		=2549+(41*64)
Depreciation of office equipment	937
Total Administrative expenses	20329
Total Selling and Administrative expenses		39991
Net operating income		11465
2
Contribution format Income Statement
	Total	Per Piano
Sales	147200	2300
Variable expenses:
Sales salaries and commissions	4416	69
Delivery of pianos	3776	59
Clerical	2624	41
Cost of goods sold	95744	1496
Total Variable expenses	106560	1665
Contribution margin	40640	635
Fixed expenses:
Advertising	956
Sales salaries and commissions	4828
Utilities	640
Depreciation of office equipment	937
Depreciation of sales facilities	5046
Executive salaries	13522
Insurance	697
Clerical	2549
Total Fixed expenses	29175
Net operating income	11465