Answer:
Todrick Company
1. Contribution Format Income Statement:
Sales $ 405,000
Beginning merchandise inventory $ 27,000
Purchases $ 270,000
Ending merchandise inventory $ 13,500
Variable selling expense $ 20,250
Variable administrative expense $ 20,250
Total variable costs 324,000
Contribution margin $ 81,000
Fixed selling expense $ 40,500
Fixed administrative expense $ 16,200 56,700
Net operating income $ 24,300
2. Traditional Format Income Statement:
Sales $ 405,000
Beginning merchandise inventory $ 27,000
Purchases $ 270,000
Ending merchandise inventory $ 13,500 283,500
Gross profit 121,500
Variable selling expense $ 20,250
Variable administrative expense $ 20,250
Fixed selling expense $ 40,500
Fixed administrative expense $ 16,200 97,200
Net operating income $ 24,300
3. The selling price per unit = $405,000/1,000 = $405
4. The variable cost per unit = $324,000/1,000 = $324
5. The contribution margin per unit = $81,000/1,000 = $81
6. The contribution format income statement would be more useful to managers in estimating how net operating income will change in response to changes in unit sales. The contribution format income statement helps in identifying the variable and fixed elements of costs. Without this separation, it is not possible to estimate how this change responds to unit sales.
Explanation:
a) Data and Calculations:
Sales $ 405,000
Beginning merchandise inventory $ 27,000
Purchases $ 270,000
Ending merchandise inventory $ 13,500 283,500
121,500
Variable selling expense $ 20,250
Variable administrative expense $ 20,250 40,500
Contribution margin $ 81,000
Fixed selling expense $ 40,500
Fixed administrative expense $ 16,200 56,700
Net operating income $ 24,300
