1 answer

Problem 1-21 Traditional and Contribution Format Income Statements [LO1-6] Marwick’s Pianos, Inc., purchases pianos from a...

Question:

Problem 1-21 Traditional and Contribution Format Income Statements [LO1-6]

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,483 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 $ 943 per month
Sales salaries and commissions $ 4,807 per month, plus 3% of sales
Delivery of pianos to customers $ 59 per piano sold
Utilities $ 657 per month
Depreciation of sales facilities $ 4,962 per month
Administrative:
Executive salaries $ 13,504 per month
Insurance $ 697 per month
Clerical $ 2,500 per month, plus $37 per piano sold
Depreciation of office equipment $ 897 per month

During August, Marwick’s Pianos, Inc., sold and delivered 57 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.

Marwick's Pianos, Inc.
Traditional Income Statement
For the Month of August
Sales $131,100
Cost of goods sold 84,531
Gross margin 46,569
Selling and administrative expenses:
Selling expenses:
Administrative expenses $943
Sales salaries and commissions 1,051
Delivery of pianos 3,363
Utilities 657
Depreciation of sales facilities 4,962
Total selling expenses 10,976
Administrative expenses:
Executive salaries 13,504
Insurance 697
Clerical 2,500
Depreciation of office equipment 897
Total administrative expenses 17,598
Total selling and administrative expenses 28,574
Net operating income $10,976
  • down through contribution margin. (A "Net operating loss" should be entered as a negative number.)

    Marwick's Pianos, Inc.
    Contribution Format Income Statement
    For the Month of August
    Total Per Piano
    Sales $131,100 $2,300
    Variable expenses:
    Sales salaries and commissions
    Delivery of pianos
    Clerical
    Cost of goods sold
    Total variable expenses 0 0
    Contribution margin
    Fixed expenses:
    Total fixed expenses 0

Answers

Solution 1:

Traditional Income Statement - Marwick Pianos Inc.
Particulars Details Amount
Sales (2300*57) $131,100.00
Less: Cost of Goods Sold (1483*57) $84,531.00
Gross Profit $46,569.00
Sellling Expenses:
Advertising $943.00
Sales Salaries and Commissions (4807 + 3% of 131100) $8,740.00
Delivery of Pianos to customers (59*57) $3,363.00
Utilities $657.00
Depreciation of Sales Facilities $4,962.00 $18,665.00
Administrative Expenses:
Executive Salaries $13,504.00
Insurance $697.00
Clerical (2500 + 37*57) $4,609.00
Depreciation of office equipment $897.00 $19,707.00
Net Income $8,197.00

Solution 2:

Contribution margin Income Statement - Marwick Pianos Inc.
Particulars Per Unit Total
Sales $2,300.00 $131,100.00
Variable Cost:
Purchase Cost $1,483.00 $84,531.00
Sales Commission $69.00 $3,933.00
Delivery of Pianos to customers $59.00 $3,363.00
Clerical Expense $37.00 $2,109.00
Contribution $652.00 $37,164.00
Fixed Cost:
Advertising $943.00
Sales Salaries $4,807.00
Utilities $657.00
Depreciation of Sales Facilities $4,962.00
Executive Salaries $13,504.00
Insurance $697.00
Clerical $2,500.00
Depreciation of office equipment $897.00
Net Income $8,197.00
.

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