Problem 1-21 (Static) Traditional and Contribution Format Income Statements [LO1-6]

Marwick's Pianos, Incorporated, purchases pianos from a large manufacturer for an average cost of $2,450 per unit and then sells them to retail customers for an average price of $3,125 each. The company's selling and administrative costs for a typical month are presented below:

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's Pianos, Incorporated, sold and delivered 40 pianos.

Required:

1. Build a traditional format income statement for August. 2. Build a contribution format income statement for August. Show costs and revenues on both a total and a per unit basis down through contribution margin.

Prepare a traditional format income statement for August.

Marwick's Pianos, Incorporated
Traditional Income Statement
For the Month of August
Sales		$125,000
Cost of goods sold		98,000
Gross margin		27,000
Selling and administrative expenses:
Selling expenses:
Advertising	$700
Sales salaries and commissions	10,950
Delivery of pianos	1,200
Utilities	350
Depreciation of sales facilities	800
Total selling expenses	14,000
Administrative expenses:
Executive salaries	2,500
Insurance	400
Clerical	1,800
Depreciation of office equipment	300
Total administrative expenses	5,000
Total selling and administrative expenses		19,000
Net operating income		$8,000

The answer is not complete. What is wrong with the above statement or what needs to be added.