Question 4

Mr Marshall is a manufacturer of earphones. The cost of earphones is shown as follows:

Number of units sold 35,000

Selling price per unit $40

Variable selling expenses per unit $3

Variable administrative cost per unit $1

Fixed selling costs $45,000

Total fixed administrative cost $28,000

Opening inventory $21,000

Purchase of inventory $805,000

Ending inventory $35,000

Required

1. Prepare a traditional income statement
2. Prepare a contribution margin income statement
3. Discuss why there are two approaches to the preparation of income statements.

[1 +2+2 = total 5 marks]

ANSWER HERE