Marwick's Pianos, Inc., purchases pianos from a large manufacturer and sells them at the retail level. The pianos cost, on the average, $2,450 each from the manufacturer. Marwick's Pianos Inc, sells pianos to its customer at an average price of $3,125 each. The selling and administrative costs that the company incurs in a typical month are presented below:Costs Cost FormulaSelling:Advertising $700 per monthSales salaries asnd commissions $950 per month, plus 8% of salesDelivery of pianos to customers $30 per piano soldUtilities $350 per monthDepreciation of sales facilities $800 per monthAdministrative:Executive salaries $2,500 per monthInsurance $400 per monthClerical $1,000 per month, plus $20 per piano soldDepreciation of office equipment $300 per monthDuring August, Marwick's Pianos, Inc., sold and delivered 40 pianos.Required:1. Prepare an income statement for Marwick's Pianos, Inc. for August. Use the traditional format, with costs organized by function.2. Redo (1) above, this time using the contribution format, with costs organized by behavior. Show costs and revenues on both a total and a per unit basis down through contribution margin.

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Asked Feb 3, 2019
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Marwick's Pianos, Inc., purchases pianos from a large manufacturer and sells them at the retail level. The pianos cost, on the average, $2,450 each from the manufacturer. Marwick's Pianos Inc, sells pianos to its customer at an average price of $3,125 each. The selling and administrative costs that the company incurs in a typical month are presented below:
Costs Cost Formula
Selling:
Advertising $700 per month
Sales salaries asnd commissions $950 per month, plus 8% of sales
Delivery of pianos to customers $30 per piano sold
Utilities $350 per month
Depreciation of sales facilities $800 per month
Administrative:
Executive salaries $2,500 per month
Insurance $400 per month
Clerical $1,000 per month, plus $20 per piano sold
Depreciation of office equipment $300 per month

During August, Marwick's Pianos, Inc., sold and delivered 40 pianos.

Required:
1. Prepare an income statement for Marwick's Pianos, Inc. for August. Use the traditional format, with costs organized by function.
2. Redo (1) above, this time using the contribution format, with costs organized by behavior. Show costs and revenues on both a total and a per unit basis down through contribution margin.

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Expert Answer

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Step 1

Under Traditional method, the cost of goods sold is deducted from sales revenue to arrive at the gross profit of the business. However, the all operating expenses are deducted from the gross profit to arrive at the net income /(Loss) of the period.

The Income Statement under Traditional method is as under:

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Step 2

Next part is to compute the contribution margin income statement in  which the variable cost is computed both total and per unit wise and is deducted from sales to arrive at the co...

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