Question

Baxter Corporation, a merchandising company, reported the following results for July:

	Number of units sold (normal operating level)	4,900
	Selling price per unit	$610
	Unit cost of goods sold (90% variable, 10% fixed)	$430
	Variable selling expense per unit	$38
	Total fixed selling expense	$134,600
	Variable administrative expense per unit	$32
	Total fixed administrative expense	$196,500

Required:

a. Prepare a traditional format income statement for July.

b. Prepare a contribution format income statement for July.

Answer 1

a.

Sales	$29,89,000
Cost of goods sold	$21,07,000
Gross margin:	$8,82,000
Selling and administrative expense:
Selling expense	$3,20,800
Administrative expense	$3,53,300
Net operating income	$2,07,900

b.

Sales	$29,89,000
Variable expense:
Cost of goods sold	$18,96,300
Variable selling expense	$1,86,200
Variable administrative expense	$1,56,800
Contribution margin	$7,49,700
Fixed expense:
Cost of goods sold	$2,10,700
Fixed selling expense	$1,34,600
Fixed administrative expense	$1,96,500
Net operating income	$2,07,900