View History Bookmarks Window Help roblems Todrick Company i

View History Bookmarks Window Help roblems Todrick Company is a merchandiser that reported the following information based on 1,000 units sold Sales Beginning nerchandise inventory Purchases Ending merchandise inventory Pixed selling expense rixed adninistrative expense Variable selling expense Variable administrative expense Contribution margin Net operating incone 435,000 $ 29,000 5 290,000 s 14,500 S 17,400 21,7S0 $ 87,000 s 26,100 Required 1 Prepare a contribution format income statement 2. Prepare a traditional format income statement 3. Calculate the selling price per unit 4. Calculate the variable cost per unit 5. Calculate the contribution margin per unit 6.Which income statement format (traditional format or contribution format would be more useful to managers in estimating how operating income will change in responses to changes in unit sales? Complete this question by entering your answers in the tabs below Req 1 Req 2 Rea 3 to 5 Reg s Prepare a contribution format income statement Prevt1 of 2 Next 4

Solution

1)  Cost of goods sold (assumed variable) = Beg. Inventory+Purchases-End. Inventory

= $29,000+$290,000-$14,500 = $304,500

Total Variable Costs = Sales - Contribution Margin

= $435,000 - $87,000 = $348,000

Total Variable costs = Cost of goods sold+Variable selling exp.+Variable administrative exp.

Variable Administrative Exp. = Total Variable costs - Cost of goods sold - Variable selling exp.

= $348,000 - $304,500 - $21,750 = $21,750

Total Fixed Costs = Contribution Margin - Net Operating Income

= $87,000 - $26,100 = $60,900

Fixed Selling Exp. = Total Fixed costs - Fixed administrative exp.

= $60,900 - $17,400 = $43,500

Todrick Company

Contribution Format Income Statement (Amounts in $)

2) Todrick Company

Traditional Income Statement (Amounts in $)

3) Selling Price per unit = Sales/Units sold

= $435,000/1,000 units = $435 per unit

4) Variable cost per unit = Total Variable costs/units sold

= $348,000/1,000 units = $348 per unit

5) Contribution Margin per unit = Selling Price per unit - Variable cost per unit

= $435 - $348 = $87 per unit

6) Contribution margin income statement format is more useful for managers because it shows contribution margin, total fixed costs, total variable costs and net operating income.

Sales		435,000
Variable Expenses:
Cost of goods sold	304,500
Variable selling expenses	21,750
Variable administrative expenses	21,750	(348,000)
Contribution Margin		87,000
Fixed Expenses:
Fixed selling expenses	17,400
Fixed administrative expenses	43,500	(60,900)
Net Operating Income		26,100