Question

Milden Company is a merchandiser that plans to sell 31,000 units during the next quarter at a selling price of $58 per unit. The company also gathered the following cost estimates for the next quarter: Cost Cost Formula Cost of good sold $28 per unit sold Advertising expense $178,000 per quarter Sales commissions 5% of sales Shipping expense $48,000 per quarter + $5.00 per unit sold Administrative salaries $88,000 per quarter Insurance expense $9,800 per quarter Depreciation expense $58,000 per quarter Required: 1. Prepare a contribution format income statement for the next quarter. 2. Prepare a traditional format income statement for the next quarter.

Answer 1

Answer:

1. contribution format income statement for the next quarter

Sales (31,000 units × $58)                                                          $1,798,000

Less Variable Costs

Cost of good sold (31,000 units × $28)              $868,000

Sales commissions ( $1,798,000 ×  5%)               $89,900

Shipping expense ( $5.00 × 31,000 units)          $155,000      ($1,112,900)

Contribution                                                                                   $985,100

Less Fixed Costs

Advertising expense                                            $178,000

Shipping expense                                                 $48,000

Administrative salaries                                          $88,000

Insurance expense                                                  $9,800

Depreciation expense                                          $58,000        ($381,800)

Net Income / (Loss)                                                                      $303,300

2. traditional format income statement for the next quarter

Sales (31,000 units × $58)                                                          $1,798,000

Less Cost of good sold

Cost of good sold (31,000 units × $28)                                     ($868,000)

Gross Profit                                                                                   $930,000

Less Expenses

Sales commissions ( $1,798,000 ×  5%)               $89,900

Advertising expense                                            $178,000

Shipping expense                                                 $48,000

Variable Shipping expense                                 $155,000

Administrative salaries                                          $88,000

Insurance expense                                                  $9,800

Depreciation expense                                          $58,000       ($626,700)

Net Income / (Loss)                                                                      $303,300

Explanation:

The Contribution Income Statement shows the Contribution whilst the Traditional Income Statement shows the Gross Profit.