Marwick’s Pianos, Inc., purchases pianos from a large manufacturer and sells them at the retail level. Thepianos cost, on the average, $2,450 each from the manufacturer. Marwick’s Pianos, Inc., sells the pianosto its customers at an average price of $3,125 each. The selling and administrative costs that the companyincurs in a typical month are presented below:Costs Cost FormulaSelling:Advertising ................................................ $700 per monthSales salaries and commissions .............. $950 per month, plus 8% of salesDelivery of pianos to customers ............... $30 per piano soldUtilities ...................................................... $350 per monthDepreciation of sales facilities .................. $800 per monthAdministrative:Executive salaries .................................... $2,500 per monthInsurance .................................................. $400 per monthClerical ..................................................... $1,000 per month, plus $20 per piano soldDepreciation of office equipment .............. $300 per monthDuring August, Marwick’s Pianos, Inc., sold and delivered 40 pianos.Required:1. Prepare an income statement for Marwick’s Pianos, Inc., for August. Use the traditional format, withcosts organized by function.2. Redo (1) above, this time using the contribution format, with costs organized by behavior. Show costsand 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 thefixed costs on a per unit basis?
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:
Costs Cost Formula
Selling:
Advertising ................................................ $700 per month
Sales salaries and commissions .............. $950 per month, plus 8% of sales
Delivery of pianos to customers ............... $30 per piano sold
Utilities ...................................................... $350 per month
Depreciation of sales facilities .................. $800 per month
Administrative:
Executive salaries .................................... $2,500 per month
Insurance .................................................. $400 per month
Clerical ..................................................... $1,000 per month, plus $20 per piano sold
Depreciation of office equipment .............. $300 per month
During August, Marwick’s Pianos, Inc., sold and delivered 40 pianos.
Required:
1. Prepare an income statement for Marwick’s Pianos, Inc., for August. 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?
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