Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: Sales $210,000
Beginning merchandise inventory $14,000
Purchases $140,000
Ending merchandise inventory $7,000
Fixed selling expense $?
Fixed administrative expense $12,000
Variable selling expense $ 15, 000
Variable administrative expense $?
Contribution marain $60,000
Net operating income 18,000
Required:
1. Prepare a contribution format income statement.
Todrick Company
Contribution Format Income Statement
Sales $300,000
Variable expenses:
Cost of goods sold $213,000
Selling expense 15,000
Administrative expense 228,000
Contribution margin 60,000
Fixed expenses
Selling expense $12,000
Administrative expense $30,000
42,000
Net operating income $60,000
2. Prepare a traditional format income statement.
3. Calculate the selling price per unit.
4. Calculate the variable cost per unit.
5. Calculate the contribution margin per unit.
6. Which income statement format (traditional format or contribution format) would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales?
Prepare a contribution format income statement.

1.                         Todrick Company  

          Contribution format income statement

Sales                                                    $210,000

Less Variable Expenses

Cost of goods sold           $161,000      

Selling Expenses               $15,000

Administrative Expenses   $12,000  

                                                             $188,000

Contribution margin                             $22,000

Less: Fixed Expenses

Selling Expenses             $68,000    

Administrative Expenses $12,000

Total Fixed Expenses                           $80,000

Net Operating Income (Loss)              $62,000

Working

Cost of goods sold=Beginning inventory + Purchases − Ending inventory

=$14,000 + $140,000 − $7,000

=$161,000

Variable administrative = Sales - Cost of goods sold - Variable expense  - Contribution margin

=  $210,000 - $161,000 - $15,000 - $60,000

= -$26,000

Fixed selling expenses = Contribution margin - Administrative margin - Net Income  

= $60,000 -  (-$26,000) - $18,000

= $68,000

2.                   Todrick Company  

         Traditional format income statement.

Sales                                                                 $210,000    

Less: Cost of goods sold                                 $161,000

Gross Profit                                                       $49,000

Selling and administrative expenses

Variable selling expenses              $15,000

Fixed selling expenses                   $68,000

Variable administrative expenses  $12,000

Fixed administrative expenses       $12,000    $107,000

Net Operating Income (Loss)                             $58,000

3. Selling price per unit = Sales / No of units

=  $210,000 / 1000 unit

= $210

4. Variable cost per unit = Variable expenses / No of units

=  $188,000 / 1000 unit

= $188

5. Contribution margin per unit = Contribution margin / No of units

= $22,000 / 1000 unit

= $22

6. In the contribution income statement, the income is calculated in a detailed manner. The expense is evaluated at each step. It will be useful for the managers to estimate the changes in net operating income.

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