Marwick’s Pianos, Inc., purchases pianos from a large manufacturer and sells the

Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer and sells them at the retail level. The pianos cost, on the average, $1,510 each from the manufacturer. Marwick’s Pianos, Inc., sells the pianos to its customers at an average price of $2,800 each. The selling and administrative costs that the company incurs in a typical month are presented below:

During August, Marwick’s Pianos, Inc., sold and delivered 61 pianos.

Required:

1. Prepare an income statement for Marwick’s Pianos, Inc., for August. Use the traditional format, with costs organized by function. (A "Net operating loss" should be entered as a negative number.)

2. Prepare an income statement for Marwick’s Pianos, Inc., for August, this time using the contribution format, with costs organized by behavior. Show costs and revenues on both a total and a per unit basis down through contribution margin. (A "Net operating loss" should be entered as a negative number.)

Costs Cost Formula Selling: Advertising $ 933 per month Sales salaries and commissions $ 4,822 per month, plus 4% of sales Delivery of pianos to customers $ 58 per piano sold Utilities $ 645 per month Depreciation of sales facilities $ 5,091 per month Administrative: Executive salaries $ 13,547 per month Insurance $ 682 per month Clerical $ 2,475 per month, plus $39 per piano sold Depreciation of office equipment $ 922 per month

Explanation / Answer

Traditional income statement Sales (61*2800) 170800 Cost of goods sold (61*1,510) 92110 Gross Margin 78690 Selling and administrative expenses Selling expenses Advertising 933 Sales salaries and commissions (4,822+170800*4%) 11654 Delivery of pianos (61*58) 3538 Utilties 645 Depreciation of sales facilities 5,091 total selling expense 21861 Administrative expenses: Executive salaries 13,547 insurance 682 Clercial (2,475+61*39) 4854 Depreciation of office Equipment 922 total administrative expense 20,005 total selling and administrative expense 41,866 Net operating income 36,824 Cotribution format income statement total per unit Sales 170800 2,800 Variable expenses Sales salaries and commissions 6832 112 Delvery of pianos 3538 58 Clercial 2379 39 cost of goods sold 92110 1,510 total variable expense 104859 1719 Contribution margin 65941 1081 Fixed expenses Advertising 933 Sales salries and commissions 4,822 utilities 645 depreciation of office equipment 922 Depreciation of sales facilities 5,091 Exceutive salaries 13,547 insurance 682 clercial 2,475 total fixed expense 29117 net operating income 36824

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