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 $1,498 per unit and then sells them to retail customers for an average price of $2,700 each. The company's selling and administrative costs for a typical month are presented below: Costs Selling: Cost Formula Advertising Sales salaries and commissions Delivery of pianos to customers Utilities Depreciation of sales facilities $937 per month $4,810 per month, plus 3% of sales $59 per piano sold $665 per month $4,911 per montlh Administrative: Executive salaries Insurance Clerical Depreciation of office equipment $13,486 per month $687 per month $2,461 per month, plus $40 per piano sold 906 per month During August, Marwick's Pianos, Inc., sold and delivered 60 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

Part 1 - Traditional Income Statement

Marwick Pianos Inc

Traditional Income Statement

For the Month of August

Sales salary and commission

($4810) + ($162000*3%)

Delivery of pianos to customers

(60 Piano * $59)

Part 2 - Contribution Margin Income statement

Marwick Pianos Inc

Contribution margin income statement

For the month of august

Total Variable Expenses (B)

$100680

$1678

Particulars Amount Sales Revenue (60 Piano * $2700) $162000 Less : Cost of Goods sold (60 Piano * $1498) $89880 Gross Profit $72120 Selling and Administrative expenses Selling Expenses Advertising expenses $937

Sales salary and commission

($4810) + ($162000*3%)

$9670

Delivery of pianos to customers

(60 Piano * $59)

$3540 Utilities $665 Depreciation of sales facilities $4911 Total Selling expenses (A) $19723 Administrative expenses Executive salary $13486 Insurance $687 Clerical ($2461) + (60 Piano*$40) $4861 Depreciation of office equipment $906 Total Administrative expenses (B) $19940 Total selling and administrative expenses (A+B) $39663 Net Income ($72120 - $39663) $32457

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