Contribution Format versus Traditional Income Statement
(1) Net income is $16,600
$500 per month
Sales salaries and commissions
$1,000 per month, plus 8% of sales
Delivery of toys to customers
$10 per toy sold
$500 per month
Depreciation of sales facilities
$400 per month
$1,500 per month
$200 per month
$500 per month, plus $5 per toy sold
Depreciation of office equipment
$300 per month
During June, The Fun Store, Inc., sold and delivered 500 toys.
Prepare an income statement for The Fun Store, Inc., for June. Use the traditional format, with costs organized by function.
Refer to the income statement you prepared in (2) above. Why might it be misleading to show the fixed costs on a per unit basis?
High-Low Method; Predicting Cost
(1) $275,400 per month plus $8.00 per bed-day
During April, the clinic’s occupancy rate was only 80%. A total of $390,600 in operating cost was incurred during the month.
Using the high-low method, estimate:
The variable cost per occupied bed on a daily basis.
The Fun Store, Inc., purchases very large and heavy toys from a large manufacturer and sells them at the retail level. The toys cost, on the average, $80 each from the manufacturer. The
Fun Store, Inc., sells the toys to its customers at an average price of $150 each. The selling and administrative costs that the company incurs in a typical month are presented below:
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.
Black Forest Clinic contains 600 beds. The average occupancy rate is 90% per month. In other words, on average 90% of the clinic’s beds are occupied by patients. At this level of
occupancy, the clinic’s operating costs are $25 per occupied bed per day, assuming a 30-day month. This $25 cost contains both variable and fixed cost elements.