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:
<u>Contribution format income statement</u>
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.
<u>Traditional format income statement</u>
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.
