House of Pianos, Inc., purchases pianos from a well-known manufacturer and sells
ID: 2364495 • Letter: H
Question
House of Pianos, Inc., purchases pianos from a well-known manufacturer and sells them at the retail level. The pianos sell, on the average, for $3,300 each. The average cost of an piano from the manufacturer is $1,492. The costs that the company incurs in a typical month are presented below: Costs Cost Formula Selling: Advertising ......................................... $955 per month Delivery of pianos ............................... $61 per piano sold Sales salaries and commissions............. $4,823 per month, plus 4% of sales Utilities ............................................... $633 per month Depreciation of sales facilities .............. $4,944 per month Administrative: Executive salaries ................................ $13,490 per month Depreciation of office equipment .......... $943 per month Clerical ............................................... $2,499 per month, plus $37 per piano sold Insurance ........................................... $719 per month During November, the company sold and delivered 60 pianos. Required: 1. Prepare a traditional income statement for September. 2. Prepare a contribution format income statement for September. Show costs and revenues on both a total and a per unit basis down through contribution margin. 3. Refer to the income statement you prepared in (2) above. Why might it be misleading to show the fixed costs on a per unit basis?Explanation / Answer
Sales 3,300 x 60 = 198,000
Cost of Goods Sold 1,492 x 60 = 89,520
gross profit on Sales 108,480
Selling Expenses:
Advertising 955
Delivery 61 x 60 = 3,660
Sales salaries 4,823
Commissions 198,000 x 4% = 7,920
Utilities 633
Depreciation 4,944
Total selling expenses 22,935
admin expense
Executive salaries 13,490
Depreciation 943
Clerical 2,499
Additional clerical expense 37 x 60 = 2,220
Insurance 719
Total expenses 19,871
Operating Income 108,480 - 22,935 - 19,871 = 65,674
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