Milden Company is a merchandiser that plans to sell 39,000 units during the next quarter at a selling price of $65 per unit. The company also gathered the following cost estimates for the next quarter: Cost Cost Formula Cost of good sold $32 per unit sold Advertising expense $188,000 per quarter Sales commissions 5% of sales Shipping expense $42,000 per quarter $4.00 per unit sold Administrative salaries $98,000 per quarter Insurance expense $10,800 per quarter Depreciation expense $68,000 per quarter Required: 1. Prepare a contribution format income statement for the next quarter. 2. Prepare a traditional format income statement for the next quarter.

1.

                      Contribution Format Income Statement

Sales (39,000 x $65)                                                    $2,535,000

Less: Variable Cost

Cost of good sold (39,000 x $32)        $1,248,000

Sales commissions (5% x 2,535,000)  $126,750

Shipping Expense ( 39,000 x $4 )        $156,000  

Total Variable cost                                                       ($1,530,750)

Contribution Margin                                                      $1,004,250

Advertising expense                              $188,000

Shipping Expense                                  $42,000

Administrative Salaries                          $98,000

Insurance Expense                                 $10,800

Depreciation                                           $68,000  

Total Fix cost                                                                ($406,800)

Net Income                                                                    $597,450

2.

                      Tradition Format Income Statement

Sales (39,000 x $65)                                                    $2,535,000

Less: Variable Cost

Cost of good sold (39,000 x $32)                              ($1,248,000)

Gross income                                                                $1,287,000

Sales commissions (5% x 2,535,000)  $126,750

Advertising expense                              $188,000

Shipping Expense ( 39,000 x $4 )        $156,000    

Shipping Expense                                  $42,000

Administrative Salaries                          $98,000

Insurance Expense                                 $10,800

Depreciation                                           $68,000  

Total Fix cost                                                                ($689,550)

Net Income                                                                    $597,450

Explanation:

1.

In Contribution margin Format all the variable cost is deducted from the sales value to calculate Contribution margin for the period. After this the fixed costs are deducted to calculate net Income for the year.

2.

In traditional format manufacturing costs are charged to the cost of goods sold which is deducted from the sales value to arrive at the gross income. All the operating expense are deducted from gross income to calculate the net income for the period.

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