Functional and Contribution Margin Income Statements Bassically Jammin’, Inc. (BJI) is a retail outlet for customized bass guitars. The average cost of a bass guitar to the company is $1,000. BJI includes a markup of 50% of cost in the sales price.

In 2009, BJI sold 380 bass guitars and finished the year with the same amount of inventory it had at the beginning of the year. Additional operating costs for the year were as follows:

Required:
1. Prepare a traditional income statement using the functional approach.
2. Prepare an income statement using the contribution margin format.
3. Interpretive Question: Which statement is more useful for decision making? Why?

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Selling expenses: Advertising (fixed) Commissions (mixed) Depreciation (fixed) Utilities (fixed) Freight on delivery (variable) Administrative expenses: Salaries (fixed) Depreciation (fixed) Utilities (fixed) Clerical (variable) $ 700 per month 3,000 per month plus 2% of sales 400 per month 125 per month 20 per bass guitar $4,200 per month 330 per month 200 per month 12 per sale