Home Entertainment is a small, family-owned business that purchases LCD televisions from a reputable manufacturer and sells them at the retail level. The televisions sell, on average, for $2,060 each. The average cost of a television from the manufacturer is $1,330. Home Entertainment has always kept careful accounting records, and the costs that it incurs in a typical month are as follows: Costs Cost Formula Selling: Advertising $ 1,090 per month Delivery of televisions $ 50 per television sold Sales salaries and commissions $ 3,040 per month, plus 5% of sales Utilities $ 404 per month Depreciation of sales facilities $ 3,160 per month Administrative: Executive salaries $ 11,500 per month Depreciation of office equipment $ 805 per month Clerical $ 1,860 per month, plus $49 per television sold Insurance $ 720 per month During April, the company sold and delivered 219 televisions. Required: 1. Prepare an income statement for April using the traditional format with costs organized by function. 2. Prepare an income statement for April, this time using the contribution format with costs organized by behaviour. Show costs and revenues on both a total and a per unit basis down through contribution margin.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Home Entertainment is a small, family-owned business that purchases LCD televisions from a reputable manufacturer and sells them at the retail level. The televisions sell, on average, for $2,060 each. The average cost of a television from the manufacturer is $1,330.

Home Entertainment has always kept careful accounting records, and the costs that it incurs in a typical month are as follows:

Costs	Cost Formula
Selling:
Advertising	$	1,090	per month
Delivery of televisions	$	50	per television sold
Sales salaries and commissions	$	3,040	per month, plus 5% of sales
Utilities	$	404	per month
Depreciation of sales facilities	$	3,160	per month
Administrative:
Executive salaries	$	11,500	per month
Depreciation of office equipment	$	805	per month
Clerical	$	1,860	per month, plus $49 per television sold
Insurance	$	720	per month

During April, the company sold and delivered 219 televisions.

Required:

1. Prepare an income statement for April using the traditional format with costs organized by function.

2. Prepare an income statement for April, this time using the contribution format with costs organized by behaviour. Show costs and revenues on both a total and a per unit basis down through contribution margin.

HOME ENTERTAINMENT
Traditional Income Statement
For the Month Ended April 30
Selling and administrative expenses:
Selling expenses:
Total selling expenses
Administrative expenses:
Total administrative expenses
$
Total selling and administrative expenses

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