Marwick\'s Pianos, Inc., purchases pianos from a large manufacturer for an avera

Question

Marwick's Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,488 per unit and then sells them to retai customers for an average price of $3,300 each. The company's selling and administrative costs for a typical month are presented below Costs Selling: ormula Advertising Sales salaries and commissions Delivery of pianos to customers Utilities Depreciation of sales facilities $947 per month $4,790 per month, plus 4% of sales $60 per piano sold $635 per month $5,019 per month Administrative: Executive salaries Insurance Clerical Depreciation of office equipment $13,481 per month $698 per month $%2,456 per month, plus $44 per piano sold $880 per month During August, Marwick's Pianos, Inc., sold and delivered 56 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

Explanation / Answer

Ans.                                    Income Statement for the month of August

Sales Value $3300X56                                      = $184800

Cost of Purchase (1488X56)                             = ($83328)

Operating Profit = $101472

Selling Advertisement and Administrative Exp.

Advertising                                    =   $947

Sales Salary and commission       =   $12182

($4790+ (4%X184800)

Delivery of piano (60X56)             =   $3360

Utilities                                          =   $635

Depreciation of Sales Facility       =   $5019 = ($9014)

Administrative cost

Executive Salary                    =      $13481

Insurance                               =     $698

Clarical                                   = $4920

($2456+44X56)      

Dep. of office equipment        =     $880              = ($19979)

Net profit                                                             = $72479

2. Calculation of contribution

Calculation of Total Selling and administrative variable cost

Salary and commission (4%X184800)   =           $7392

Delivery of piano                                   =            $3360

Clarical   (44X56)    =    $2464

           $13216

Total no of unit sold 56

Variable selling and administrative cost per unit = $13216/56 =$236

Cost of purchase is $1488

Total variable cost per unit of piano (1488+236)=$1724

Selling Value of Piano    = $3300

Contribution per unit of piano (3300-1724) = $1576                                  

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