Question

The Alpine House, Inc., is a large retailer of snow skis. The company assembled the information shown below for the quarter ended March 31:

		Amount
Sales	$	1,092,000
Selling price per pair of skis	$	420
Variable selling expense per pair of skis	$	45
Variable administrative expense per pair of skis	$	19
Total fixed selling expense	$	135,000
Total fixed administrative expense	$	120,000
Beginning merchandise inventory	$	70,000
Ending merchandise inventory	$	115,000
Merchandise purchases	$	290,000

Required:

1. Prepare a traditional income statement for the quarter ended March 31.

2. Prepare a contribution format income statement for the quarter ended March 31.

3. What was the contribution margin per unit?

Answer 1

(1)Traditional income statement for the quarter ended March 31.

Particulars	Amount	Amount
Sales		$10,92,000
Less : Cost of goods sold		($2,45,000)
Gross margin		$8,47,000
Selling and administrative expenses:
Selling expenses	$2,52,000
Administrative expenses	$1,69,400	($4,21,400)
Net operating income		$4,25,600

Cost of goods sold = $70000 + 290000 – 115000 = $2,45,000

Pairs of snow skis = $1092000 / $420 = 2,600 pairs of skis

Selling expenses = (2600 x $45) + 135000 = $2,52,000

Administrative expenses = (2600 x $19) + 120000 = $1,69,400

(2) Contribution format income statement for the quarter ended March 31.

Particulars	Amount	Amount
Sales		$10,92,000
Variable Expenses
Cost of goods sold	$2,45,000
Selling expenses	$1,17,000
Administrative expenses	$49,400	($4,11,400)
Contribution margin		$6,80,600
Fixed expenses:
Selling expenses	$1,35,000
Administrative expenses	$1,20,000	($2,55,000)
Net operating income		$4,25,600

(3) Contribution margin per unit = $262 per unit

Contribution margin per unit = Selling price – variable cost per unit

= $420 – [$4,11,400 / 2600 Pairs ]

= $420 - 158.23

= $261.77

= $262 (Rounded to whole number)