Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,489 per unit and then sells them to retail customers for an average price of $2,500 each.

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,489 per unit and then sells them to retail customers for an average price of $2,500 each. The company’s selling and administrative costs for a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$	930 per month
Sales salaries and commissions	$	4,799 per month, plus 4% of sales
Delivery of pianos to customers	$	61 per piano sold
Utilities	$	648 per month
Depreciation of sales facilities	$	5,048 per month
Administrative:
Executive salaries	$	13,546 per month
Insurance	$	690 per month
Clerical	$	2,460 per month, plus $37 per piano sold
Depreciation of office equipment	$	930 per month

During August, Marwick’s Pianos, Inc., sold and delivered 62 pianos.

Required:

1. Prepare a traditional format income statement for August.

Explanation

1.

Sales: (62 pianos × $2,500 per piano) = $155,000

Cost of goods sold: (62 pianos × $1,489 per piano) = $92,318

Sales salaries and commissions: [$4,799 + (4% × $155,000)] = $10,999

Delivery of pianos: (62 pianos × $61 per piano) = $3,782

Clerical: [$2,460 + (62 pianos × $37 per piano)] = $4,754

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.

 

Explanation 

2.

Sales: (62 pianos × $2,500 per piano) = $155,000

Cost of goods sold: (62 pianos × $1,489 per piano) = $92,318

Sales salaries and commissions: (4% × $155,000) = $6,200

Delivery of pianos: (62 pianos × $61 per piano) = $3,782

Clerical: (62 pianos × $37 per piano) = $2,294