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:
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Costs
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Cost Formula
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Selling:
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Advertising........................................
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$1,000
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per month
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Sales salaries and commissions....
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$800
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per month, plus 5% of sales
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Delivery of toys to customers........
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$6
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per toy sold
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Utilities...............................................
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$700
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per month
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Depreciation of sales facilities.......
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$900
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per month
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Administrative:
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Executive salaries............................
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$3,500
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per month
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Insurance..........................................
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$500
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per month
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Clerical...............................................
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$500
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per month, plus $5 per toy sold
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Depreciation of office equipment
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$600
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per month
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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)
TUTORIAL
PREVIEW
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THE FUN STORE INC
Income statement
For the month of October
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Sales
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$18,000
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Cost of goods sold
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4,050
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Gross margin
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`
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13,950
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