Accounting Chapter 2

Chapter 2 Solutions, 2nd Day

Exercise 2-5 (15 minutes)

1. Traditional income statement

Redhawk, Inc.Traditional Income Statement |

Sales ($15 per unit × 10,000 units) | | $150,000 |

Cost of goods sold

($12,000 + $90,000 – $22,000) | | 80,000 |

Gross margin | | 70,000 |

Selling and administrative expenses: | | |

Selling expenses

(($2 per unit × 10,000 units) + $20,000) | 40,000 | |

Administrative expenses

(($1 per unit × 10,000 units) + $15,000) |  25,000 |  65,000 |

Net operating income | | $ 5,000 |

2. Contribution format income statement

Redhawk, Inc.Contribution Format Income Statement |

Sales | | $150,000 |

Variable expenses: | | |

Cost of goods sold

($12,000 + $90,000 – $22,000) | $80,000 | |

Selling expenses ($2 per unit × 10,000 units) | 20,000 | |

Administrative expenses

($1 per unit × 10,000 units) |  10,000 |  110,000 |

Contribution margin | | 40,000 |

Fixed expenses: | | |

Selling expenses | 20,000 | |

Administrative expenses |  15,000 |  35,000 |

Net operating income | | $ 5,000 |

Problem 2-14 (45 minutes)

1.

| House Of Organs, Inc. |

| Traditional Income Statement |

| For the Month Ended November 30 |

| | | |

| Sales (60 organs × $2,500 per organ) | | $150,000 |

| Cost of goods sold

(60 organs × $1,500 per organ) | |    90,000 |

| Gross margin | | 60,000 |

| Selling and administrative expenses: | | |

| Selling expenses: | | |

| Advertising | $    950 | |

| Delivery of organs

(60 organs × $60 per organ) | 3,600 | |

| Sales salaries and commissions

[$4,800 + (4% × $150,000)] | 10,800 | |

| Utilities | 650 | |

| Depreciation of sales facilities |    5,000 | |

| Total selling expenses |  21,000 | |

| Administrative expenses: | | |

| Executive salaries | 13,500 | |

| Depreciation of office equipment | 900 | |...