Home Entertainment is a small, family-owned business that purchases LCD televisions from a reputable manufacturer and sells them at the retail level. The televisions sell, on average, for $1,500 each. The average cost of a television from the manufacturer is $900. Home Entertainment has always kept careful accounting records, and the costs that it incurs in a typical month are as follows: Cost Formula $ Costs Selling: Advertising Delivery of televisions Sales salaries and commissions Utilities Depreciation of sales facilities Administrative: Executive salaries Depreciation of office equipment Clerical Insurance $ 950 per month 40 per television sold $ 2,900 per month, plus 4% of sales $ 400 per month $ 3,000 per month $ 8,000 per month 500 per month $ 1,500 per month, plus $40 per television sold 400 per month During April, the company sold and delivered 150 televisions. Required: 1. Prepare an income statement for April using the traditional format with costs organized by function. $ 225,000 135,000 90,000 HOME ENTERTAINMENT Traditional Income Statement For the Month Ended April 30 Accounts receivable Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Advertising $ 950 Delivery of televisions 6,000 Sales salaries and commissions 11,900 Utilities 400 Depreciation of sales facilities 3,000 Total selling expenses 22,250 Administrative expenses: Executive salaries 8,000 Depreciation of office equipment 500 Clerical 7,500 Insurance 400 Total administrative expenses $ 16,400 Total selling and administrative expenses Operating loss 38,650 51,350 $ 2. Prepare an income statement for April, this time using the contribution format with costs organized by behaviour. Show costs and revenues on both a total and a per unit basis down through contribution margin. HOME ENTERTAINMENT Contribution Format Income Statement For the Month Ended April 30 Total Per Unit Accounts receivable $ 225,000 $ 150 Variable expenses Sales commissions 9,000 150 Sales salaries 2,900 150 Delivery of televisions 6,000 150 Clerical 7,500 150 Total variable expenses 25,400 600 199,600 $ (450) Fixed expenses Executive salaries 8,000 Insurance 400 Advertising 950 Depreciation of sales facilities 3,000 Depreciation of office equipment 500 Total fixed expenses 12,850 186,750 $ Home Entertainment has always kept careful accounting records, and the costs that it Incurs in a typical month are as follows: Cost Formula Costs Selling: Advertising Delivery of televisions Sales salaries and commissions Utilities Depreciation of cales facilities Administrative: Executive salaries Depreciation of office equipment Clerical Insurance $ 950 per month $ 40 per television sold $ 2,900 per month, plus 4% of sales 5 488 per month $ 3,80 per month $ 8,00 per month $ 500 per month $ 1,500 per month, plus $40 per television sold $ 400 per month During April, the company sold and delivered 150 televisions Required: 1. Prepare an income statement for April using the traditional format with costs organized by function. HOME ENTERTAINMENT Traditional Income Statement For the Month Ended April 30 Selling and administrative expenses Selling expenses Total selling expenses Administrative expenses: Total administrative expenses Total selling and administrative expenses 2. Prepare an income statement for April, this time using the contribution format with costs organized by behaviour. Show costs and revenues on both a total and a per unit basis down through contribution margin. HOME ENTERTAINMENT Contribution Format Income Statement For the Month Ended April 30 Total Per Unit Variable expenses Total vanable expenses Fixed expenses Total fixed expenses
