Marwick Piano

ACG 2071

Chapter 5 – Classwork Problem S. Smith

Marwick Pianos, Inc. purchases its pianos from a large manufacturer and then sells them at the retail level. The pianos cost $2,450 each from the manufacturer and Marwick’s price to sell them is $3,125 each. The selling and administrative costs that the company incurs are as follows:

Costs Cost Formula

Selling

Advertising $700 per month

Sales Salaries and 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 Pianos Inc. sold and delivered 40 pianos. Assume that Marwick carried no beginning or ending inventory.

Required:

1) Classify each of Marwick’s costs as either fixed, variable, or mixed

2) Prepare an income statement for Marwick for August using the traditional (GAAP) format.

3) Prepare an income statement for Marwick for August using the contribution format.

#1 Fixed (F), Variable (V), or Mixed (M)

Cost of Goods Sold ____V__ Depreciation-Sales Facilities __F____

Advertising ____F___ Executive Salaries __F____

Sales Salaries and Comm. ____M__ Insurance __F____

Delivery of Pianos ____V__ Clerical __M____

Utilities ____F___ Depreciation – Office Equip. __F_____

#2 Income Statement – Traditional Format

Total

Sales (40 x 3,125) $ 125,000

Less: Cost of Goods Sold (40 x 2,450) _ 98,000_____

Gross Profit 27,000

Less: Operating Expenses

Advertising $ 700

Delivery Expense ( 30 x 40) 1,200...