Question

Milden Company is a merchandiser that plans to sell 43,000 units during the next quarter at a selling price of $60 per unit. The company also gathered the following cost estimates for the next quarter: Cost Cost Formula Cost of good sold $31 per unit sold Advertising expense $187,000 per quarter Sales commissions 6% of sales Shipping expense $45,000 per quarter + $4.00 per unit sold Administrative salaries $97,000 per quarter Insurance expense $10,700 per quarter Depreciation expense $67,000 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 (43,000 units ×  $60 )                                           $2,580,000

Less Variable Costs

Cost of Goods Sold ( 43,000 units ×  $31 )                   ($1,333,000)

Sales commissions (6% × 43,000 units ×  $60)               ($154,800)

Shipping expense ( $4.00 × 43,000 units)                      ($172,000)

Contribution                                                                       $920,000

Less Fixed Costs

Advertising expense                               $187,000

Shipping expense                                    $45,000

Administrative salaries                             $97,000

Insurance expense                                    $10,700

Depreciation expense                              $67,000        ($406,700)

Net Income/ (Loss)                                                            $513,300

2. Traditional format income statement for the next quarter.

Sales (43,000 units ×  $60 )                                           $2,580,000

Less  Cost of Goods Sold ( 43,000 units ×  $31 )         ($1,333,000)

Gross Profit                                                                      $1,247,000

Less Expenses

Advertising expense                               $187,000

Shipping Expense :

   Variable Shipping expense                $172,000

   Fixed Shipping expense                      $45,000

Administrative salaries                             $97,000

Insurance expense                                    $10,700

Sales commissions                                  $154,800

Depreciation expense                              $67,000        ($733,500)

Net Profit / (Loss)                                                              $513,500

Explanation:

The contribution format income statement shows the Contribution instead of Gross Profit. Contribution is calculated as Sales less all Variable Costs.

The traditional format income statement shows the Gross Profit instead of Contribution. Gross Profit is calculated as Sales less Cost of Goods Sold.