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PROBLEM 3-11 Contribution Format versus Traditional Income Statement |LO3 ) Home Entertainment is a small, family-owned business that purchases LCD televisions from a reputable manufacturer
PROBLEM 3-11 Contribution Format versus Traditional Income Statement |LO3 ) 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: Casts Cost Formula Selling: Advertising $950 per month Delivery of televisions $40 per television sold Sales salaries and commissions $2,900 per month, plus 4% of sales Utilities $400 per month Depreciation of sales facilities $3,000 per month Administrative: Executive salaries $8,000 per month Depreciation of office equipment $500 per month Clerical $1,500 per month, plus $40 per television sold Insurance $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 2. Redo (1) above, 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. 3. 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
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