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