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
