Answer:
Milden Company
Traditional and Contribution Format Income Statements
1. A contribution format income statement for the next quarter:
Sales Revenue $1,815,000
less variable costs:
Cost of goods sold $825,000
Sales commission 90,750
Shipping costs 165,000 1,080,750
Contribution $734,250
Fixed costs:
Shipping cost 32,000
Advertising expense 182,000
Administrative salaries 92,000
Insurance expense 10,200
Depreciation expense 62,000 378,200
Net income $356,050
2. A traditional format income statement for the next quarter:
Sales Revenue $1,815,000
Cost of goods sold 825,000
Gross profit $990,000
Period costs:
Shipping costs 197,000
Sales commission 90,750
Advertising expense 182,000
Administrative salaries 92,000
Insurance expense 10,200
Depreciation expense 62,000 633,950
Net income $356,050
Explanation:
a) Data and Calculations:
Estimated sales units during the next quarter = 33,000
Selling price per unit = $55
Sales revenue = $1,815,000
Cost of goods sold = $825,000 ($25 * 33,000)
Sales commission = $90,750 ($1,815,000 * 5%)
Shipping expense:
Fixed element = $32,000
Variable cost = 165,000 ($5 * 33,000)
Total shipping expense = $197,000
Other fixed costs per quarter:
Advertising expense = $182,000
Administrative salaries $92,000
Insurance expense $10,200
Depreciation expense $62,000
b) With the contribution format income statement, all the variable costs (recognized as product costs) are deducted from revenue in order to determine the contribution margin before deducting the fixed costs. The traditional format income statement does not compute contribution. But it determines the gross profit, which is the difference between sales revenue and cost of goods sold. Each method results in the same amount of net income, especially in the absence of inventories.
