Question

Amount Number of units sold 11,000 Selling price per unit $ 16 Variable selling expense per unit $ 1 Variable administrative expense per unit $ 1 Total fixed selling expense $ 22,000 Total fixed administrative expense $ 14,000 Beginning merchandise inventory $ 9,000 Ending merchandise inventory $ 25,000 Merchandise purchases $ 87,000 Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement.

Answer 1

Traditional income statement : Net operating income $47,000

Contribution income statement : Net operating income  $25,000

1.

Traditional Income Statement

Sales  (11,000 x $16)                       $176,000

Cost of goods sold

(9,000 + 87,000 - 25,000)            ($71,000)

Gross Margin                                  105,000

Selling and administrative expenses:  

Selling expense

(11,000 x 1) + 22,000                      $33,000

Administrative expense

(11,000 x 1) + 14,000                       $25000

Net operating income                  $47,000

2.

Contribution format income statement

Sales                                                $176,000

Variable expenses:  

Cost of goods sold        71,000  

Selling expense              11,000  

Administrative expense  11,000      ($93,000)

Contribution Margin                         $83,000

Fixed expenses:  

Selling expense                33,000  

Administrative expense   25,000     (58,000)

Net operating income                     $25,000

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