Question
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,
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 $2,250 each. The average cost of a television from the manufacturer is $1,340. |
Home Entertainment has always kept careful accounting records, and the costs that it incurs in a typical month are as follows: |
Costs | Cost Formula | ||
Selling: | |||
Advertising | $ | 1,135 | per month |
Delivery of televisions | $ | 45 | per television sold |
Sales salaries and commissions | $ | 3,070 | per month, plus 4% of sales |
Utilities | $ | 460 | per month |
Depreciation of sales facilities | $ | 3,660 | per month |
Administrative: | |||
Executive salaries | $ | 9,550 | per month |
Depreciation of office equipment | $ | 520 | per month |
Clerical | $ | 1,660 | per month, plus $41 per television sold |
Insurance | $ | 480 | per month |
|
During April, the company sold and delivered 210 televisions. |
Required: |
1. | Prepare an income statement for April using the traditional format with costs organized by function. |
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. |
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