Response to the following problem:
House of Pianos, Inc., purchases pianos from a well-known manufacturer and sells them at the retail level. The pianos sell, on the average, for $3,300 each. The average cost of an piano from the manufacturer is $1,492.
The costs that the company incurs in a typical month are presented below: Costs Cost Formula Selling:
Advertising ......................................... $955 per month
Delivery of pianos ............................... $61 per piano sold
Sales salaries and commissions............. $4,823 per month, plus 4% of sales
Utilities ............................................... $633 per month
Depreciation of sales facilities .............. $4,944 per month
Administrative: Executive salaries ................................ $13,490 per month
Depreciation of office equipment .......... $943 per month
Clerical ............................................... $2,499 per month, plus $37 per piano sold
Insurance ........................................... $719 per month During November, the company sold and delivered 60 pianos.
Required:
1. Prepare a traditional income statement for September.
2. Prepare a contribution format income statement for September. 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?