Question

Chapter 03

House of Pianos, Inc. purchases pianos from a well-known manufacturer and sells them at the retail level. The pianos sell, on the average, for $2,600 each. The average cost of a   piano from the manufacturer is $1,750.

House of Pianos, Inc. has always kept careful records of its costs. The costs that the company incurs in a typical month are presented below:

Costs		Cost Formula
Selling:
Advertising	$1,650.00	per month
Delivery of Pianos	$80.00	per piano sold
Sales Salaries and Commissions	$3,500.00	per month, plus 3% of sales
Utilities	$800.00	per month
Depreciation of Sales Facilities	$4,600.00	per month
Administrative:
Executive Salaries	$15,500.00	per month
Depreciation of Office Equipment	$700.00	per month
Clerical	$2,900.00	per month, plus $50 per piano sold
Insurance	$750.00	per month

During November, the company sold and delivered 95 pianos.

1. Prepare a Contribution Format income statement for November with costs organized by behaviour. Show costs and revenues on both a total and a per unit basis down through contribution margin. – 12 marks

Answer 1

	INCOME STATEMENT
		A	B=A*95
		Per Unit	Total
a	Sales Revenue	$2,600	$247,000
	Variable Costs:
b	Cost from manufacturer	$1,750	$166,250
c	Delivery of Piano	$80	$7,600
d=a*3%	Sales Commission	$78	$7,410
e	Clerical	$50	$4,750
f=b+c+d+e	Total variable cost	$1,958	$186,010
X=a-f	Contribution Margin	$642	$60,990
	Fixed Costs:
g	Advertising		$1,650
h	Sales Salaries		$3,500
i	Utilities		$800
j	Depreciation of Sales facilities		$4,600
k	Executive Salaries		$15,500
l	Depreciation of Office Equipment		$700
m	Clerical		$2,900
n	Insurance		$750
Y=g+h+i+j+k+l+m+n	Total Fixed Cost per month		$30,400
Z=X-Y	Net Income		$30,590