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Tutorial   20569

House of the organs Inc,Purchases organs from well known manufacturers and sell them at the retail level. The organ sells, on the average, for $2,500 ...

Question:

House of the organs Inc,Purchases organs from well known manufacturers and sell them at the retail level. The organ sells, on the average, for $2,500 each. The average cost of the organs from manufacturers is $1,500.The cost that the company incurs in a typical month are presented below:

Costs                                                                                                     Costs Formula

Selling:

Advertising                                                                                         $950 per month

Delivery of organs                                                                           $60 per Organ sold

Sales salaries and commissions                                                  $4,800 per month, Plus 4% of sales

Utilities                                                                                                 $650 per month

Depreciations of Sales facilities                                                  $5,000 per month

Administrative:

Executive salaries                                                                            $13,500 per month

Depreciation of office Equipment                                             $900 per month

Clerical                                                                                                  $2,500 per month plus $40 per organ sold

Insurance                                                                                            $700 per month

During the November the company sold and delivered 60 Organs.

Required:

1.            Prepare a Traditional income statement for November.

2.            Prepare a contribution format income statement for November.show cost and revenues on  both a total and 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 cost on a per unit basis.