Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: Sales $ 240,000
Beginning merchandise inventory $ 16,000
Purchases $ 160,000
Ending merchandise inventory $ 8,000
Fixed selling expense $ ?
Fixed administrative expense $ 9600
Variable selling expense $ 12,000
Variable administrative expense $ ?
Contribution margin $ 48,000
Net operating income $ 14,400
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?

Todrick Company

1. Contribution format income statement:

Sales                                                                 $ 240,000

Beginning merchandise inventory $ 16,000

Purchases                                      $ 160,000

Ending merchandise inventory      ( $ 8,000)

Cost of goods sold                           168,000

Variable selling expense                $ 12,000

Variable administrative expense   $ 12,000      192,000

Contribution margin                                          $ 48,000

Fixed selling expense                  $ 24,000

Fixed administrative expense       $ 9,600          33,600

Net operating income                                       $ 14,400

2. Traditional format income statement:

Sales                                                                 $ 240,000

Beginning merchandise inventory $ 16,000

Purchases                                      $ 160,000

Ending merchandise inventory      ( $ 8,000)

Cost of goods sold                                              168,000

Gross profit                                                         $72,000

Fixed selling expense                  $ 24,000

Fixed administrative expense       $ 9,600

Variable selling expense              $ 12,000

Variable administrative expense $ 12,000            57,600

Net operating income                                          $ 14,400

3. Selling price per unit:

Sales revenue/1,000 = $240,000/1,000 = $240

4. Variable cost per unit:

Total variable costs/1,000

= $192,000/1,000

= $192

5. Contribution margin per unit:

= Selling price minus variable cost per unit

= $240 - 192

= $48

6. Contribution format income statement will be more useful because it calculates the contribution margin per unit, which can be used to estimate the net operating income changes in response to changes in unit sales.

Explanation:

a) Data and Calculations:

Quantity of goods sold = 1,000 units

Variable administrative expense:

Total variable cost =      $192,000 ($240,000 - 48,000)

Less:

Cost of goods sold          168,000

Variable selling expense  12,000

Variable admin. expense $12,000

Fixed selling expense:

Total fixed expense      $33,600 ($48,000 - 14,400)

less:

Fixed admin. expense   $ 9600

Fixed selling expense $24,000

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