Question

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold:

Sales $435,000
Beginning merchandise inventory $29,000
Purchases $290,000
Ending merchandise inventory $14,500
Fixed selling expense $ ?
Fixed administrative expense $17,400
Variable selling expense $ 21,750
Variable administrative expense $ ?
Contribution margin $87,000
Net operating income $26,100
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

3. Sales Price 435 per unit

4. Variable cost $ 348 per unit

5. Contribution margin $ 87 per unit.

6. Contribution Format Income Statement

Step-by-step explanation:

Todrick Company

Contribution Format Income Statement.

Sales $435,000

Beginning merchandise inventory $29,000

Purchases $290,000

Ending merchandise inventory $14,500

Direct Materials Used 304,500

Variable selling expense $ 21,750

Variable administrative expense $ ? 21750

Contribution margin $87,000

Fixed selling expense $ ? 43,500

Fixed administrative expense $17,400

Net operating income $26,100

Todrick Company

Traditional Format Income Statement.

Sales $435,000

Beginning merchandise inventory $29,000

Purchases $290,000

Ending merchandise inventory $14,500

Direct Materials Used 304,500

Gross Profit $ 130,500

Less Selling And Admin. Expenses.

Variable selling expense $ 21,750

Fixed selling expense $ ? 43,500

Variable administrative expense $ ? 21750

Fixed administrative expense $17,400

Net operating income $26,100

3. Sales Price Per unit = Total Sales/ Total Sales Units

= $435,000/1000= $ 435 per unit

4. Variable cost per unit= Total Variable Costs/ No of Units=

= 304,500 + 43,500/1000

= 348,000/1000= $ 348 per unit

5. Contribution margin per unit= Contribution Margin / No of Unit

= $87,000/1000= $ 87 per unit.

6. Contribution Format Income Statement is more useful as it changes with the number of units varied. Traditional may not show the change that accurately as fixed expenses do not change with the change in the number of units.And in contribution margin income statement the variable expenses are accounted for separately.