Question

Milden Company is a merchandiser that plans to sell 12,000 units during the next quarter at a selling price of $100 per unit. The company also gathered the following cost estimates for the next quarter: Cost Cost Formula Cost of good sold $35 per unit sold Advertising expense $210,000 per quarter Sales commissions 6% of sales Shipping expense $28,000 per quarter + $9.10 per unit sold Administrative salaries $145,000 per quarter Insurance expense $9,000 per quarter Depreciation expense $76,000 per quarter

Answer 1

Answer:

Part 1 – Milden Company – Contribution format income Statement  

Sales (12000 × 100) = 1,200,000  

Less: Variable Cost  

COGS (12000 × 35) = 420,000

Sales Commissions (1,200,000 × 6%) = 72,000

Shipping Exp. (12000 × 9.10) = 109,200

Total Variable Cost = 601,200

Contribution Margin = Sales – Variable Cost  

Contribution Margin = 1,200,000 – 601,200  

Contribution Margin = 598,800

Less: Fixed Cost  

Adm. Salaries exp. = 145,000

Advertising exp. = 210,000

Shipping exp. = 28,000

Depreciation exp. = 76,000

Insurance exp. = 9000

Total Fixed cost = 468,000

Net Income = Contribution Margin - Total Fixed cost

Net Income = 598,800 – 468,000

Net Income = 130,800

Part 2 – Milden Company – Traditional format income Statement  

Sales (12000 × 100) = 1,200,000  

Less: COGS (12000 × 35) = 420,000

Gross Profit = 780,000

Less Operating expense  

Sales Commission (1,200,000 × 6%) = 72,000  

Shipping exp. (12000 × 9.10) + 28,000 = 137,200

Adm. Salaries exp. = 145,000

Advertising exp. = 210,000

Depreciation exp. = 76,000

Insurance exp. = 9000

Total Operating Expense = 649,200

Net Income = Gross Profit - Total Operating expense  

Net Income = 780,000 – 649,200

Net Income = 130,800