PROBLEM $5-11$ Contribution Format versus Traditional Income Statement $[$L$04]$

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

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:

Prepare an income statement for Marwick's Pianos, Inc., for August. Use the traditional format, with costs organized by function.

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.

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?

Note: Every section should be in detail solve $(01,02,03).$ Obviously in Indian students way solve I need.