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Tuesday, 24 July 2012

House of Organs, Inc., purchases organs from a well-known manufacturer and sells them at the retail

House of Organs, Inc., purchases organs from a well-known manufacturer and sells them at the retail level. The organs sell, on the average, for $2,500 each. The average cost of an organ from the manufacturer is $1,500. The costs that the company incurs in a typical month are presented below:

  Costs   Cost Formula
  Selling:  
       Advertising   $950 per month
       Delivery of organs   $60 per organ sold
       Sales salaries and commissions   $4,800 per month, plus 4% of sales
       Utilities   $650 per month
       Depreciation of sales facilities   $5,000 per month
  Administrative:  
       Executive salaries   $13,500 per month
       Depreciation of office equipment   $900 per month
       Clerical   $2,500 per month, plus $40 per organ sold
       Insurance   $700 per month


During November, the company sold and delivered 60 organs.

Required:
1.
Prepare a traditional income statement for November. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

House Of Organs, Inc.
Traditional Income Statement
For the Month Ended November 30
  Sales   $  
  Cost of goods sold    
   
  Gross margin    
  Selling and administrative expenses:    
     Selling expenses:    
        Advertising $    
        Delivery of organs    
        Sales salaries and commissions    
        Utilities    
        Depreciation of sales facilities    
 
 
     Total selling expenses    
 
 
     Administrative expenses:    
        Executive salaries    
        Depreciation of office equipment    
        Clerical    
        Insurance    
 
 
     Total administrative expenses     
 
 
  Total selling and administrative expenses    
   
  Net operating income   $  
   



2.
Prepare a contribution format income statement for November. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

House Of Organs, Inc.
Contribution Format Income Statement
For the Month Ended November 30
          Total         Per unit
  Sales $   $  
 

  Variable expenses:    
       Cost of goods sold    
       Delivery of organs    
       Sales commissions    
       Clerical    
 

  Total variable expenses    
 

  Contribution margin   $  
 

  Fixed expenses:    
       Advertising    
       Sales salaries    
       Utilities    
       Depreciation of sales facilities    
       Executive salaries    
       Depreciation of office equipment    
       Clerical    
       Insurance    
 
 
  Total fixed expenses    
 
 
  Net operating income $    
 

 



Explanation:
1.
Sales: (60 organs × $2,500 per organ) = $150,000
Cost of goods sold: (60 organs × $1,500 per organ) = $90,000
Delivery of organs: (60 organs × $60 per organ) = $3,600
Sales salaries and commissions: [$4,800 + (4% × $150,000)] = $10,800
Clerical: [$2,500 + (60 organs × $40 per organ)] = $4,900
  
2.
Sales: (60 organs × $2,500 per organ) = $150,000
Cost of goods sold: (60 organs × $1,500 per organ) = $90,000
Delivery of organs: (60 organs × $60 per organ) = $3,600
Sales commissions: (4% × $150,000) = $6,000
Clerical: (60 organs × $40 per organ) = $2,400