Question - Marwick's Pianos, Inc., purchases pianos from a large manufacturer and sells them at the retail level. The pianos cost, on the average, $2,450 each from the manufacturer. Marwick's Pianos, Inc., sells the pianos to its customers at an average price of $3,125 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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$700 per month
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Sales salaries and commissions
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$950 per month, plus 8% of sales
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Delivery of pianos to customers
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$30 per piano sold
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Utilities
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$350 per month
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Depreciation of sales facilities
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$800 per month
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Administrative:
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Executive salaries
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$2,500 per month
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Insurance
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$400 per month
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Clerical
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$1,000 per month, plus $20 per piano sold
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Depreciation of office equipment
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$300 per month
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During August, Marwick's Pianos, Inc., sold and delivered 40 pianos.
Requirement 1: Prepare an income statement for Marwick's Pianos, Inc., for August. Use the traditional format, with costs organized by function.
Requirement 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.