Question

Marwick's Pianos Inc. purchases pianos from a large manufacturer and sells them at the retail level.The pianos cost, on average, $1,488 each from the manufacturer.Marwick's Pianos Inc. sells the pianos to its customers at an average price of $2,900 each.The selling and administrative costs that the company incurs in a typical month are presented below:Costs Cost FormulaSelling:Advertising $942 per monthSales salaries and commissions $4,799 per month, plus 3% of salesDelivery of pianos to customers $60 per piano soldUtilities $650 per monthDepreciation of sales facilities $4,945 per monthAdministrative:Executive salaries $13,566 per monthInsurance $685 per monthClerical $2,480 per month, plus $36 per piano soldDepreciation of office equipment $900 per monthDuring August, Marwick's Pianos Inc. sold and delivered 63 pianos.Required:1. Prepare an income statement for Marwick's Pianos Inc. for August. Use the traditional format, with costs organized by function.2. Prepare an income statement for Marwick's Pianos Inc. for August, this time using the contribution format, with costs organized by behavior. Show costs and revenues on both a total and a per unit basis down through contribution margin.

Answer 1

1) Marwick's Pianos Inc.

Income Statement

For the month ended August 202x

Total sales revenue $182,700

Cost of goods sold ($93,744)

Gross profit $88,956

• Administrative expenses:
• Executive salaries ($13,566)
• Clerical salaries ($4,748)
• Depreciation office equipment ($900)
• Utilities ($650) ($19,864)

Sales expenses:

• Sales salaries and commissions ($10,280)
• Delivery expense ($3,780)
• Advertising ($942)
• Depreciation of sales facilities ($4,945) ($19,947)

Operating income $49,145

2) Marwick's Pianos Inc.

Income Statement

For the month ended August 202x

Total sales revenue $182,700

Variable costs:

• Pianos ($93,744)
• Sales commissions ($5,481)
• Clerical commissions ($2,268)
• Delivery expense ($3,780) ($105,273)

Contribution margin $77,427

Period costs:

• Executive salaries ($13,566)
• Clerical salaries ($2,480)
• Sales and commissions ($4,799)
• Advertising ($942)
• Depreciation expense ($5,845)
• Utilities expense ($650) ($28,282)

Operating income $49,145

Step-by-step explanation:

cost of a piano = $1,488

selling price per piano = $2,900

advertising $942 per month

sales and commissions $4,799 + 3% commissions on sales

delivery of pianos = $60 per piano

utilities expense = $650

depreciation expense = $4,945

executive salaries = $13,566

clerical salaries = $2,480 + $36 per piano

depreciation = $900

63 pianos sold during August

cost of goods sold = $1,488 x 63 = $93,744

total sales revenue = $2,900 x 63 = $182,700

sales commissions = $5,481

clerical commissions = $2,268