Question

Milden Company is a merchandiser that plans to sell 27,000 units during the next quarter at a selling price of $53 per unit. The company also gathered the following cost estimates for the next quarter: CostCost Formula Cost of good sold$23 per unit sold Advertising expense$173,000 per quarter Sales commissions6% of sales Shipping expense$68,000 per quarter $5.00 per unit sold Administrative salaries$83,000 per quarter Insurance expense$9,300 per quarter Depreciation expense$53,000 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:

Part 1.

Contribution format income statement for the next quarter.

Sales                                                                                 $1,431,000

Less Variable Costs

Cost of Sales                                              $621,000

Sales commissions                                     $85,860

Shipping expense : Variable                     $135,000   ($832,860)

Contribution                                                                    $598,140

Less Fixed Costs

Advertising expense                                $173,000

Shipping expense : Fixed                         $68,000

Administrative salaries                              $83,000

Insurance expense                                      $9,300

Depreciation expense                              $53,000    ($386,300)

Net Income                                                                     $211,840

Part 2.

Traditional format income statement for the next quarter.

Sales                                                                                 $1,431,000

Less Cost of Sales                                                           ($621,000)

Gross Profit                                                                       $810,000

Less Operating Expenses

Sales commissions                                  $85,860

Shipping expense : Variable                 $135,000

Advertising expense                              $173,000

Shipping expense : Fixed                       $68,000

Administrative salaries                            $83,000

Insurance expense                                    $9,300

Depreciation expense                            $53,000         ($598,160)

Net Income                                                                       $211,840

Explanation:

Contribution format income statement

Here the Company calculates Contribution. Contribution is the amount remaining after All Variable Costs are deducted from Sales Revenue. All the Fixed Costs are expensed in the year they are incurred.

Traditional format income statement

Here the Company calculates Gross Profit. Gross Profit is the amount remaining after All Cost of Sales are deducted from Sales Revenue. All the other costs incurred are expensed in the year they are incurred as operating expenses.