Chapter 16 Marwick\'s Planos, Inc., purchases pianos from a large manufacturer f

Question

Chapter 16 Marwick's Planos, Inc., purchases pianos from a large manufacturer for an average cost of $2,450 per unit and then sells them to retail customers for an average price of $3,125 each. The company's selling and administrative costs for a typical presented below Sales salaries and commissions Delivery of pianos to customers Utilities Depreciation of sales facilities $700 per month $950 per month, plus 88 of sale $30 per piano sold $350 per month $800 per month Administrative Executive salaries Insurance $2,500 per month $400 per month Clerical $300 per month During August, Marwick's Pianos, Inc.,, sold and delivered 40 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. Required 1 Required 2

Explanation / Answer

Traditional Income Statement Sales 125000 =40*3125 Cost of goods sold 98000 =40*2450 Gross Margin 27000 Selling and administrative expenses: Selling expenses: Advertising 700 Sales salaries and commissions 10950 =950+(125000*8%) Delivery of pianos to customers 1200 =40*30 Utilities 350 Depreciation of sales facilities 800 Total Selling expenses 14000 Administrative expenses: Executive salaries 2500 Insurance 400 Clerical 1800 =1000+(40*20) Depreciation of office equipment 300 Total Administrative expenses 5000 Total Selling and administrative expenses 19000 Net operating income 8000 Contribution format Income Statement Total Per Piano Sales 125000 3125 Variable expenses: Sales salaries and commissions 10000 250 Delivery of pianos to customers 1200 30 Clerical 800 20 Cost of goods sold 98000 2450 Total Variable expenses 110000 2750 Contribution margin 15000 375 Fixed expenses: Advertising 700 Sales salaries and commissions 950 Utilities 350 Depreciation of sales facilities 800 Depreciation of office equipment 300 Executive salaries 2500 Insurance 400 Clerical 1000 Total fixed expenses 7000 Net operating income 8000

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