r quick access place your bookmarks here on the bookmarks ba

r quick access, place your bookmarks here on the bookmarks bar. Import bookmarks now Chapter 10 Problem 1-19 Traditional and Contribution Format Income Statements [LO1-6 Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: 5 oints 480,000 32,000 320,000 $ 16,000 Sales Beginning merchandise inventory Purch 8e8 Ending nerchandise inventory Pixed selling expense Pixed adninistrative expense Variable selling expense Variable administrative expense Contribution margin Net operating incone eBook Print References s 19,200 $ 24,000 96,000 $ 28,800 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 net operating income will change in responses to changes in unit sales? Complete this question by entering your answers in the tabs below Req 1Req 2 Req 3 to 5 Req 6

Solution

Part 1 --- Contribution Margin Income Statement

Contribution Format Income Statement

$$

$$

Sales

$480,000

Variable Expenses:

Cost of material used (Beginning 32,000 + Purchase 320,000 - ending 16,000)

$336,000

Variable administrative expense (bal. fig)

$24,000

Variable selling expense

$24,000

Total Variable Expenses (480,000 - 96,000)

$384,000

Contribution Margin

$96,000

Fixed Expenses:

Fixed Selling Expenses

$19,200

Fixed administrative expense (Bal. fig)

$48,000

Total Fixed Expense (Contribution 96,000 - Net Op Income 28,800)

$67,200

Net Operating Income

$28,800

Part 2 – Traditional Income Statement

Traditional Income Statement

$$

$$

Sales

$480,000

Cost of Goods Sold (Beginning 32,000 + Purchase 320,000 - ending 16,000)

$336,000

Gross Profit

$144,000

Selling and administrative expense:

Variable administrative expense (bal. fig)

24000

Variable selling expense

24000

Fixed Selling Expenses

19200

Fixed administrative expense (Bal. fig)

48000

Total Selling and administrative expense

$115,200

Net Operating Income

$28,800

Part 3 – Selling Price Per Unit = Total Sales Value / Total Unit Sold = $480,000 / 1,000 Units Sold = $480 per unit

Part 4 – Variable Cost Per Unit = Total Variable Cost / Units Sold = $384,000 / 1,000 Units = $384 per unit

Part 5 – Contribution Margin per unit = Unit Selling Price $480 – Unit Variable Cost $384 = $96 per unit                                                           

Part 6 – Contribution Format income statement is more useful to the management in estimating how net operating income will change in response to changes in unit sales since it provides CVP analysis.

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Contribution Format Income Statement
	$$	$$
Sales		$480,000
Variable Expenses:
Cost of material used (Beginning 32,000 + Purchase 320,000 - ending 16,000)	$336,000
Variable administrative expense (bal. fig)	$24,000
Variable selling expense	$24,000
Total Variable Expenses (480,000 - 96,000)		$384,000
Contribution Margin		$96,000
Fixed Expenses:
Fixed Selling Expenses	$19,200
Fixed administrative expense (Bal. fig)	$48,000
Total Fixed Expense (Contribution 96,000 - Net Op Income 28,800)		$67,200
Net Operating Income		$28,800