The Rhythm Shop is a large retailer of acoustic, electric, and bass guitars. An income statement for the company's acoustic guitar department for a recent quarter is presented below:

THE RHYTHM SHOP

Income StatementAcoustic Guitar Department

For the Quarter Ended March 31

Sales$2,890,000

Cost of goods sold1,700,000

Gross margin1,190,000

Selling and administrative expenses:

Selling expenses$540,000

Administrative expenses340,000880,000

Operating income$310,000

The guitars sell, on average, for $850 each. The department's variable selling expenses are $89 per guitar sold. The remaining selling expenses are fixed. The administrative expenses are 25% variable and 75% fixed. The company purchases its guitars from several suppliers at an average cost of $500 per guitar.

Required:1.Prepare income statement for the quarter using the contribution approach.

Variable expenses:

Fixed expenses:

2.What was the contribution toward fixed expenses and profits from each guitar sold during the quarter? (State this figure in a single dollar amount per guitar.)

Contribution margin per guitar

3.If The Rhythm Shop sells 130 more guitars in the quarter ending June 30 than it did in the quarter ending March 31, and fixed costs remain the same, by how much will operating income increase?

Operating income increases by