Accounting Hw

dramatic art of Organs, Inc. , purchases variety meat from a well-known manufacturer and sells them at the retail level. The organs sell, on the average, for $2,500 each. The average cost of an organ from the manufacturer is $1,500. mansion of Organs, Inc. , has always kept careful records of its cost. The be that the company incurs in a typical month are presented below in the form of a spreadsheet equals Cost Formula Selling Advertising . . . . . . . . . . . . . . . . . . . . . . . . . $950 per month Delivery of organs . . . . . . . . . . . . . . . . . . $60 per organ interchange gross revenue salaries and commissions . . . . . . . . . $4,800 per month, plus 4% of sales Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $650 per month Depreciation of sales facilities . . . . . . . . . . $5,000 per month administrative Executive salaries . . . . . . . . . . . . . . . . . . . $13,500 per month Depreciation of office equipment . . . . . . . $900 per month clerica l . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,500 per month, plus $40 per organ sell Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . $700 per month During November, the company sold and delivered 60 organs. Required 1. Prepare an income statement for November using the tralatitious format with cost organized by function. 2. 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 social whole 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 costs on a per unit basis? SOLUTION 1. House Of Organs, Inc. Income Statement For the Month Ended November 30 gross sales (60 organs ? 2,500 per organ) $150,000 Cost of goods sold 90,000 (60 organs ? 1,500 per organ) thoroughgoing(a) margin 60,000 Selling and administrative expenses Selling expenses Adve rtising $950 Delivery of organs 3,600 (60 organs ? $60 per organ) Sales salaries and commissions 10,800 $4,800 + (4% ? 150,000) Utilities 650 Depreciation of sales facilities 5,000 Total selling expenses 21,000 Administrative expenses Executive salaries 13,500 Depreciation of office equipment 900 Clerical 4,900 $2,500 + (60 organs ? 40 per organ) Insurance 700 Total administrative expenses 20,000 Total selling and administrative expenses 41,000 shekels operating income $? 19,000 2. House Of Organs, Inc. Income Statement For the Month Ended November 30 Total Per Unit Sales (60 organs ? $2,500 per organ) $150,000 $2,500 Variable expenses Cost of goods sold 90,000 1,500 (60 organs ? 1,500 per organ) Delivery of organs 3,600 60 (60 organs ? $60 per organ) Sales commissions (4% ? $150,000) 6,000 100 Clerical (60 organs ? $40 per organ) 2,400 40 Total variable expenses 102,000 1,700 Contribution margin 48,000 $800 Fixed expenses Advertising 950 Sales salaries 4,800 Utilities 650 Depreciation of sales facilities 5,000 Executive salaries 13,500 Depreciation of office equipment 900 Clerical 2,500 Insurance 700 Total fixed expenses 29,000 Net operating income $19,000 3. Fixed costs remain constant in total but vary on a per unit basis with changes in the activity level. For example, as the activity level increases, fixed costs decrease on a per unit basis. Showing fixed costs on a per unit basis on the income statement make them appear to be variable costs. That is, management might be misled into thinking that the per unit fixed costs would be the same regardless of how many organs were sold during the month. For this reason, fixed costs should be shown only in totals on a contribution-type income statement.