Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,515 per unit and then sells them to retail customers for an average price of $3,200 each. The company’s selling and administrative costs for a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$	935 per month
Sales salaries and commissions	$	4,787 per month, plus 3% of sales
Delivery of pianos to customers	$	61 per piano sold
Utilities	$	645 per month
Depreciation of sales facilities	$	5,038 per month
Administrative:
Executive salaries	$	13,547 per month
Insurance	$	708 per month
Clerical	$	2,507 per month, plus $45 per piano sold
Depreciation of office equipment	$	902 per month

During August, Marwick’s Pianos, Inc., sold and delivered 57 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.

Answer 1

Part 1) Traditional Income Statement for August

Sales	182400
Less:- COGS	86355
Gross Profit	96045
Less:-Selling Costs
Advertising	935
Sales Salaries and commisions(5472 +4787)	10259
Delivery of Pianos	3477
Utilities	645
Depreciation	5038
Less:- Administrative
Executive Salaries	13547
Insurance	708
Clerical(2507 + 2565)	5072
Depreciation	902
Operating Income	55462

Part b) Contribution Margin Income Statement

Particulars	Total	per unit
Sales	182400	3200
Less:- Variable costs
COGS	86355	1515
Sales Salaries and commissions	5472	96
Delivery of Pianos	3477	61
Clerical cost	2565	45
Contribution Margin	84531	1483