Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: Sales $ 225,000 Beginning merchandise inventory $ 15,000 Purchases $ 150,000 Ending merchandise inventory $ 7,500 Fixed selling expense $ ? Fixed administrative expense $ 9,000 Variable selling expense $ 11,250 Variable administrative expense $ ? Contribution

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold:
Sales $ 225,000
Beginning merchandise inventory $ 15,000
Purchases $ 150,000
Ending merchandise inventory $ 7,500
Fixed selling expense $ ?
Fixed administrative expense $ 9,000
Variable selling expense $ 11,250
Variable administrative expense $ ?
Contribution margin $ 45,000
Net operating income $ 13,500
Required: 1. Prepare a contribution format income statement. 2. Prepare a traditional format income statement. 3. Calculate the selling price per unit. 4. Calculate the variable cost per unit. 5. Calculate the contribution margin per unit. 6. Which income statement format (traditional format or contribution format) would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales?

Answer 1

To prepare a contribution format income statement, start with the sales revenue, subtract the variable expenses to find the contribution margin, and subtract the fixed expenses to calculate net operating income. The selling price per unit is calculated by dividing the sales revenue by the number of units sold. The variable cost per unit can be calculated by subtracting the ending merchandise inventory from the beginning inventory and dividing by the number of units sold.

Step-by-step explanation:

To prepare a contribution format income statement, we start with the sales revenue and subtract the variable expenses to find the contribution margin. Then we subtract the fixed expenses to calculate the net operating income. Here's how the income statement would look:

Sales: $225,000

Variable expenses: $11,250 + ? + ?

Contribution margin: $45,000

Fixed expenses: ? + $9,000

Net operating income: $13,500

The traditional format income statement would include all the expenses in separate categories, making it easier to analyze each expense individually. The contribution format income statement, on the other hand, focuses on the contribution margin to assess profitability.

To calculate the selling price per unit, we divide the sales revenue by the number of units sold. To calculate the variable cost per unit, we subtract the ending merchandise inventory from the beginning inventory and divide by the number of units sold. Finally, to calculate the contribution margin per unit, we subtract the variable cost per unit from the selling price per unit.

Based on the given information, we cannot determine the exact values for the fixed selling expense and variable administrative expense. These values would need to be provided in the problem statement.