Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an averag

Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,510 per unit and then sells them to retail customers for an average price of $2,600 each. The company’s selling and administrative costs for a typical month are presented below:

During August, Marwick’s Pianos, Inc., sold and delivered 62 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.

Costs Cost Formula Selling: Advertising $ 937 per month Sales salaries and commissions $ 4,819 per month, plus 5% of sales Delivery of pianos to customers $ 62 per piano sold Utilities $ 669 per month Depreciation of sales facilities $ 5,040 per month Administrative: Executive salaries $ 13,523 per month Insurance $ 691 per month Clerical $ 2,491 per month, plus $37 per piano sold Depreciation of office equipment $ 898 per month

Explanation / Answer

Solution 1:

Solution 2:

Traditional Income Statement - Marwick Pianos Inc. Particulars Details Amount Sales (2600*62) $161,200.00 Less: Cost of Goods Sold (1510*62) $93,620.00 Gross Profit $67,580.00 Sellling Expenses: Advertising $937.00 Sales Salaries and Commissions (4819 + 5% of 161200) $12,879.00 Delivery of Pianos to customers (62*62) $3,844.00 Utilities $669.00 Depreciation of Sales Facilities $5,040.00 $23,369.00 Administrative Expenses: Executive Salaries $13,523.00 Insurance $691.00 Clerical (2491 + 37*62) $4,785.00 Depreciation of office equipment $898.00 $19,897.00 Net Income $24,314.00

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