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:

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 pet unitbasis?

Costs Cost Formula Selling: $700 per month Advertising $950 per month, plus 8% of sales Sales salaries and commissions $30 per piano sold Delivery of pianos to customers Utilities $350 per month Depreciation of sales facilities $800 per month Administrative: $2,500 per month Executive salaries $400 per month Insurance $1,000 per month, plus $20 per piano sold Clerical Depreciation of office equipment $300 per month