Question

Fanelli Corporation, a merchandising company, reported the following results for July:

Number of units sold 6,700
Selling price per unit $ 600
Unit cost of goods sold $ 419
Variable selling expense per unit $ 62
Total fixed selling expense $ 126,200
Variable administrative expense per unit $ 30
Total fixed administrative expense $ 208,100
Cost of goods sold is a variable cost in this company.

Required:

a. Prepare a traditional format income statement for July.

b. Prepare a contribution format income statement for July.

Answer 1

The traditional format income statement for July shows an operating income of $262,000. For the contribution format, the net operating income is the same, $262,000, after deducting total variable and fixed costs from total sales.

Step-by-step explanation:

Traditional Format Income Statement for July

Sales (6,700 units × $600) = $4,020,000

Cost of Goods Sold (6,700 units × $419) = $2,807,300
Gross Profit: $4,020,000 - $2,807,300 = $1,212,700

Selling Expenses (variable, 6,700 units × $62) = $415,400

Administrative Expenses (variable, 6,700 units × $30) = $201,000
Total Variable Expenses: $415,400 + $201,000 = $616,400

Fixed Selling Expenses: $126,200

Fixed Administrative Expenses: $208,100
Total Fixed Expenses: $126,200 + $208,100 = $334,300
Operating Income: $1,212,700 - ($616,400 + $334,300) = $262,000

Contribution Format Income Statement for July

Total Sales: $4,020,000
Variable Costs:

Expenses:

COGS: $2,807,300

Selling Expenses: $415,400

Administrative Expenses: $201,000
Total Variable Costs: $3,423,700
Contribution Margin: $4,020,000 - $3,423,700 = $596,300

Fixed Costs:

Selling Expenses: $126,200

Administrative Expenses: $208,100
Total Fixed Costs: $334,300
Net Operating Income: $596,300 - $334,300 = $262,000

Answer 2

See below

Step-by-step explanation:

1. Absorption costing income statement

Sales = 6,700 × $600 = $4,020,000

COGS = 6,700 × $419 = ($2,807,300)

Gross profit = $1,212,700

Total selling expenses = (6,700 × $62 + $126,200) = ($541,600)

Total administrative expenses = (6,100 × $30 + $208,100) = ($391,100)

Net operating income = $280,000

2. Variable costing income statement

Sales = $4,020,000

Total variable cost = 6,700 × ($419 + $62 + $30) = ($3,423,700)

Total contribution margin = $596,300

Total fixed selling expense = ($126,200)

Total administrative selling expense = ($208,100)

Net operating profit = $262,000