Fine Piano’s purchases pianos from a well-known manufacturer and sells them through their retail store. The Baby Grand Pianos sell, on average, for $2,500 each. The average cost of a piano from the manufacturer is $1,500. The costs that the Company incurs in a typical month are presented below.

Selling Costs:
Advertising $ 950 Per Month
Delivery of Pianos $ 60 Per Piano Sold
Sales Salaries and Commissions $ 4,800 Per Month, plus 4% of Sales
Utilities $ 650 Per Month
Depreciation on Sales Facilities $ 5,000 Per Month

Administrative Costs:
Executive Salaries $13,500 Per Month
Depreciation of Office Equipment $ 900 Per Month
Clerical $ 2,500 Per Month, plus $40 Piano Sold
Insurance $ 700 Per Month

During August, the Company sold and delivered 60 pianos.

1. Prepare a traditional income statement.
2. Prepare a contribution format income statement. Show costs and revenues on both a total and per unit basis down through the contribution margin.

Traditional Format Income Statement
Sales………………………………………………………………………………… $150,000
Cost of Goods Sold……………………………………………… 90,000
Gross Margin……………………………………………………………… 60,000
Selling And Administrative Expenses: Selling………………………………………………………………… $21,000 Administrative……………………………………………… 20,000 41,000
Net Operating Income………………………………………… $19,000

Contribution Format Income Statement
Sales………………………………………………………………………………… $150,000
Variable expenses: Cost of goods sold…………………………………… $90,000 Variable selling………………………………………… 9,600 Variable administrative……………………… 2,400 102,000
Contribution Margin…………………………………………… 48,000
Fixed expenses: Fixed selling………………………………………………… 11,400 Fixed administrative……………………………… 17,600 29,000
Net operating income………………………………………… $19,000

Contribution Format Income