The Fun Store, Inc., purchases very large and heavy toys
from a large manufacturer and sells them at the retail level.
P5-15 Contribution Format versus Traditional Income
Statement (LO4)
CHECK FIGURE (1) Net income is $(400)
P5-15 The Fun Store, Inc., purchases very large and heavy
toys from a large manufacturer and sells them at the retail level. The toys
cost, on the average, $9 each from the manufacturer. The Fun Store, Inc., sells
the toys to its customers at an average price of $40 each. The selling and
administrative costs that the company incurs in a typical month are presented
below:
|
Costs
|
Cost Formula
|
|
|
Selling:
|
|
|
|
Advertising
|
$1,000
|
per month
|
|
Sales salaries and commissions
|
$800
|
per month, plus 5% of sales
|
|
Delivery of toys to customers
|
$6
|
per toy sold
|
|
Utilities
|
$700
|
per month
|
|
Depreciation of sales facilities
|
$900
|
per month
|
|
Administrative:
|
|
|
|
Executive salaries
|
$3,500
|
per month
|
|
Insurance
|
$500
|
per month
|
|
Clerical
|
$500
|
per month, plus $5 per toy sold
|
|
Depreciation of office equipmen
|
$600
|
per month
|
During June, The Fun Store, Inc., sold and delivered 450
toys.
Required:
1. Prepare an
income statement for The Fun Store, Inc., for June. Use the traditional format,
with costs organized by function.
2. Redo (1)
above, 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.
3. Refer to the
income statement you prepared in (2) above. Why might it be misleading to show
the fixed costs on a per unit basis?
CHECK FIGURE
(1) Net income is $(400)
SOLUTION PREVIEW
Selling expenses:
|
Advertising
|
$1,000
|
|
Sales salaries and commissions
|
1,700
|
|
Delivery of toys
|
2,700
|
