Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: Sales $ 360,000 Beginning merchandise inventory $ 24,000 Purchases $ 240,000 Ending merchandise inventory $ 12,000 Fixed selling expense $ ? Fixed administrative expense $ 14,400 Variable selling expense $ 18,000 Variable administrative expense $ ? Contribution margin $ 72,000 Net operating income $ 21,600 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?

Answer 1

Answer:

1. a contribution format income statement

Sales                                                                                           $ 360,000

Less Cost of Sales (Variable Cost)

Opening Merchandise Inventory    $ 24,000

Add Purchases                               $ 240,000

Less Closing Inventory                    ($ 12,000)  ($ 252,000)

Less Variable Selling Expense                             ($ 18,000)

Less Variable administrative expense                    (18,000)   ($288,000)

Contribution                                                                                 $ 72,000

Less Fixed Expenses ;

Fixed selling expense                                          ($36,000)

Fixed administrative expense                              ($ 14,400)       (50,400)

Net Operating Income                                                                 $ 21,600

2.  a traditional format income statement.

Sales                                                                                           $ 360,000

Less Cost of Sales (Variable Cost)

Opening Merchandise Inventory                        $ 24,000

Add Purchases                                                   $ 240,000

Less Closing Inventory                                        ($ 12,000)   ($ 252,000)

Gross Profit                                                                                 $ 108,000

Less Expenses ;

Selling Expenses

Variable Selling Expense                                    ($ 18,000)

Fixed selling expense                                          ($36,000)

Administrative Expenses

Variable administrative expense                           (18,000)

Fixed administrative expense                             ($ 14,400)       (86,400)

Net Operating Income                                                                $ 21,600

3. $ 360

4. $288

5. $72

6. contribution format

Explanation:

Selling price per unit = Total Sales Revenue / Units Sold

                                   =  $ 360,000 / 1,000 units

                                   =  $ 360

variable cost per unit = Total Variable Cost / units sold

                                    = $288,000 / 1,000 units

                                    = $288

contribution margin per unit = Selling price per unit - variable cost per unit

                                               = $ 360 - $288

                                               = $72

Contribution format is more useful to managers because its shows separately the changes in variable costs and contribution with any change in units sales