Marwick’s Pianos, Inc., purchases pianos from a large

Marwick's Pianos, Inc., purchases pianos from a large manufacturer and sells them at the retail level. The pianos cost, on the average, $2,450 each from the manufacturer. Marwick's Pianos, Inc., sells the pianos to its customers at an average price of $3,125 each. The selling and administrative costs that the company incurs in a typical month are presented below:

Costs Cost Formula Selling: $700 per month Advertising $950 per month, plus 8% of sales Sales salaries and commissions $

During August, Marwick's Pianos, Inc., sold and delivered 40 pianos.

Required:

1. Prepare an income statement for Marwick's Pianos, Inc., for August. Use the traditional format, with costs organized by function.

2. Redo (1) above, this time using the contribution format, with costs organized by behavior. Show costs and revenues on both a total and a per unit basis down through contribution margin.

3. Refer to the income statement you prepared in (2) above. Why might it be misleading to show the fixed costs on a pet unitbasis?

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...