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Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: Sales $ 300,000 Beginning merchandise inventory $ 20,000 Purchases $ 200,000 Ending merchandise inventory $ 7,000 Fixed selling expense $ ? Fixed administrative expense $ 12,000 Variable selling expense $ 15,000 Variable administrative expense $ ? Contribution margin $ 60,000 Net operating income $ 18,000 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?

1. Cost of goods sold ($20,000 + $200,000 - $7,000) = $213,000 The variable administrative expense shown above ($12,000) is computed as follows: Sales (a) $ 300,000 Contribution margin (b) $ 60,000 Total variable costs (a) ‒ (b) $ 240,000 Total variable costs (a) $ 240,000 Cost of goods sold $ 213,000 Variable selling expense 15,000 Cost of goods sold plus variable selling expense (b) $ 228,000 Variable administrative expense (a) ‒ (b) $ 12,000 The fixed selling expense shown above ($30,000) is computed as follows: Contribution margin (a) $ 60,000 Net operating income (b) $ 18,000 Total fixed costs (a) ‒ (b) $ 42,000 Total fixed costs (a) $ 42,000 Fixed administrative expense (b) $ 12,000 Fixed selling expense (a) ‒ (b) $ 30,000 2. Cost of goods sold ($20,000 + $200,000 - $7,000) = $213,000 Selling expense ($15,000 + $30,000) = $45,000 Administrative expense ($12,000 + $12,000) = $24,000 3. The selling price per unit is $300,000 ÷ 1,000 units sold = $300. 4. The variable cost per unit is $240,000 ÷ 1,000 units sold = $240. 5. The contribution margin per unit is $300 - $240 = $60. 6. The contribution format is more useful because it organizes costs based on their cost behavior. The contribution format enables managers to quickly calculate how variable costs will change in response to changes in unit sales.

Milden Company is a merchandiser that plans to sell 12,000 units during the next quarter at a selling price of $100 per unit. The company also gathered the following cost estimates for the next quarter: Cost Cost Formula Cost of good sold $35 per unit sold Advertising expense $210,000 per quarter Sales commissions 6% of sales Shipping expense $28,000 per quarter + $9.10 per unit sold Administrative salaries $145,000 per quarter Insurance expense $9,000 per quarter Depreciation expense $76,000 per quarter Required: 1. Prepare a contribution format income statement for the next quarter. 2. Prepare a traditional format income statement for the next quarter.

1. Sales (12,000 units × $100 per unit) = $1,200,000 Cost of goods sold (12,000 units × $35 per unit) = $420,000 Sales commission (6% × $1,200,000) = $72,000 Shipping expense (12,000 units × $9.10 per unit) = $109,200 2. Sales (12,000 units × $100 per unit) = $1,200,000 Cost of goods sold (12,000 units × $35 per unit) = $420,000 Sales commission (6% × $1,200,000) = $72,000 Shipping expense [$28,000 + (12,000 units × $9.10 per unit)] = $137,200

Marwick's Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $2,450 per unit and then sells them to retail customers for an average price of $3,125 each. The company's selling and administrative costs for a typical month are presented below: Costs Cost Formula Selling: Advertising $ 700 per month Sales salaries and commissions $ 950 per month, plus 8% of sales Delivery of pianos to customers $ 30 per piano sold Utilities $ 350 per month Depreciation of sales facilities $ 800 per month Administrative: Executive salaries $ 2,500 per month Insurance $ 400 per month Clerical $ 1,000 per month, plus $20 per piano sold Depreciation of office equipment $ 300 per month During August, Marwick's Pianos, Inc., sold and delivered 40 pianos. Required: 1. Prepare a traditional format income statement for August. 2. Prepare a contribution format income statement for August. Show costs and revenu

1. Sales: (40 pianos × $3,125 per piano) = $125,000 Cost of goods sold: (40 pianos × $2,450 per piano) = $98,000 Sales salaries and commissions: [$950 + (8% × $125,000)] = $10,950 Delivery of pianos: (40 pianos × $30 per piano) = $1,200 Clerical: [$1,000 + (40 pianos × $20 per piano)] = $1,800 2. Sales: (40 pianos × $3,125 per piano) = $125,000 Cost of goods sold: (40 pianos × $2,450 per piano) = $98,000 Sales salaries and commissions: (8% × $125,000) = $10,000 Delivery of pianos: (40 pianos × $30 per piano) = $1,200 Clerical: (40 pianos × $20 per piano) = $800

Miller Company's total sales are $120,000. The company's direct labor cost is $15,000, which represents 30% of its total conversion cost and 40% of its total prime cost. Its total selling and administrative expense is $18,000 and its only variable selling and administrative expense is a sales commission of 5% of sales. The company maintains no beginning or ending inventories and its manufacturing overhead costs are entirely fixed costs. Required: 1. What is the total manufacturing overhead cost? 2. What is the total direct materials cost? 3. What is the total manufacturing cost? 4. What is the total variable selling and administrative cost? 5. What is the total variable cost? 6. What is the total fixed cost? 7. What is the total contribution margin?

1. The total manufacturing overhead cost is computed as follows: Direct labor cost (a) $ 15,000 Direct labor as a percentage of total conversion costs (b) 30% Total conversion cost (a) ÷ (b) $ 50,000 Total conversion cost (a) $ 50,000 Direct labor cost (b) 15,000 Total manufacturing overhead cost (a) ‒ (b) $ 35,000 2. The total direct materials cost is computed as follows: Direct labor cost (a) $ 15,000 Direct labor as a percentage of total prime costs (b) 40% Total prime cost (a) ÷ (b) $ 37,500 Total prime cost $ 37,500 Direct labor cost 15,000 Total direct materials cost (a) ‒ (b) $ 22,500 3. The total amount of manufacturing cost is computed as follows: Direct materials cost $ 22,500 Direct labor cost 15,000 Manufacturing overhead cost 35,000 Total manufacturing cost $ 72,500 4. The total variable selling and administrative cost is computed as follows: Total sales(a) $ 120,000 Sales commission percentage (b) 5% Total variable selling and administrative cost (a) × (b) $ 6,000 5. The total variable cost is computed as follows: Direct materials cost $ 22,500 Direct labor cost 15,000 Sales commissions 6,000 Total variable cost $ 43,500 6. The total fixed cost is computed as follows: Total selling and administrative expenses (a) $ 18,000 Sales commissions (b) $ 6,000 Total fixed selling and administrative expense (a) ‒ (b) $ 12,000 Total fixed manufacturing overhead 35,000 Total fixed cost $ 47,000 7. The total contribution margin is calculated as follows: Sales (a) $ 120,000 Variable costs (b) $ 43,500 Contribution margin (a) ‒ (b) $ 76,500

1. With respect to cost classifications for preparing financial statements: a. What is the total product cost? b. What is the total period cost?

1a. The total product cost is computed as follows: Direct materials $ 69,000 Direct labor 35,000 Total manufacturing overhead 43,000 Total product cost $ 147,000 1b. The total period cost is computed as follows: Total selling expense $ 30,000 Total administrative expense 29,000 Total period cost $ 59,000

2. With respect to cost classifications for assigning costs to cost objects: a. What is total direct manufacturing cost? b. What is the total indirect manufacturing cost?

2a. The total direct manufacturing cost is computed as follows: Direct materials $ 69,000 Direct labor 35,000 Total direct manufacturing cost $ 104,000 2b. The total indirect manufacturing cost is computed as follows: Variable manufacturing overhead $ 15,000 Fixed manufacturing overhead 28,000 Total indirect manufacturing cost $ 43,000

3. With respect to cost classifications for manufacturers: a. What is the total manufacturing cost? b. What is the total nonmanufacturing cost? c. What is the total conversion cost and prime cost?

3a. The total manufacturing cost is computed as follows: Direct materials $ 69,000 Direct labor 35,000 Total manufacturing overhead 43,000 Total manufacturing cost $ 147,000 3b. The total nonmanufacturing cost is computed as follows: Total selling expense $ 30,000 Total administrative expense 29,000 Total nonmanufacturing cost $ 59,000 3c. The total conversion cost is computed as follows: Direct labor $ 35,000 Total manufacturing overhead 43,000 Total conversion cost $ 78,000 The total prime cost is computed as follows: Direct materials $ 69,000 Direct labor 35,000 Total prime cost $ 104,000

4. With respect to cost classifications for predicting cost behavior: a. What is the total variable manufacturing cost? b. What is the total fixed cost for the company as a whole? c. What is the variable cost per unit produced and sold?

4a. The total variable manufacturing cost is computed as follows: Direct materials $ 69,000 Direct labor 35,000 Variable manufacturing overhead 15,000 Total variable manufacturing cost $ 119,000 4b. The total amount of fixed cost for the company as a whole is computed as follows: Fixed manufacturing overhead $ 28,000 Fixed selling expense 18,000 Fixed administrative expense 25,000 Total fixed cost $ 71,000 4c. The variable cost per unit produced and sold is computed as follows: Direct materials $ 69,000 Direct labor 35,000 Total variable manufacturing overhead 15,000 Variable selling expense 12,000 Variable administrative expense 4,000 Total variable cost (a) $ 135,000 Number of units produced and sold (b) 1,000 Variable cost per unit produced and sold (a) ÷ (b) $ 135

5. With respect to cost classifications for decision making: a. If Dozier had produced 1,001 units instead of 1,000 units, how much incremental manufacturing cost would it have incurred to make the additional unit?

5a. The incremental manufacturing cost is computed as follows: Direct materials $ 69,000 Direct labor 35,000 Variable manufacturing overhead 15,000 Total incremental cost (a) $ 119,000 Number of units produced and sold (b) 1,000 Incremental cost per unit produced (a) ÷ (b) $ 119

3. What is the total amount of the Apparel Department's direct costs that are also variable costs with respect to total departmental sales?

The direct costs in the Apparel Department that are also variable with respect to departmental sales is computed as follows: Apparel Department cost of sales—Evendale Store $ 90,000 Apparel Department sales commission—Evendale Store 7,000 Total direct costs for the Apparel Department that are also variable costs $ 97,000

1. What is the total amount of the costs listed above that are direct costs of the Apparel Department?

The direct costs of the Apparel Department are as follows: Apparel Department cost of sales—Evendale Store $ 90,000 Apparel Department sales commission—Evendale Store 7,000 Apparel Department manager's salary—Evendale Store 8,000 Total direct costs for the Apparel Department $ 105,000

2. What is the total amount of the costs listed above that are direct costs of the Evendale Store?

The direct costs of the Evendale Store are as follows: Apparel Department cost of sales—Evendale Store $ 90,000 Store manager's salary—Evendale Store 12,000 Apparel Department sales commission—Evendale Store 7,000 Store utilities—Evendale Store 11,000 Apparel Department manager's salary—Evendale Store 8,000 Janitorial costs—Evendale Store 9,000 Total direct costs for the Evendale Store $ 137,000


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