Situation 1
Honest Andrea’s Auto Dealer purchases used cars at auto auctionsand sells them retail. The autos, on average, sell forapproximately $20,000 each and cost Andrea $13,000. The costs thatthe company incurs in a typical month are listed below:
Costs Cost Formula
Selling:
Advertising $3,800 per month
Preparation of Autos forDelivery $ 750 per auto sold
Sales salaries &commissions $4,500 per month, plus 7% of sales
Utilities $5,200 per month
Depreciation on sales facility $4,500 per month
Administrative:
Executivesalaries $14,000 per month
Depreciation on officeequipment $2,200 per month
Clerical staffsalaries $3,500 per month
Insurance $1,800 per month
During April, Honest Andrea’s sold 65 autos.
Required
Prepare a traditional income statement as of April 30. Allnumbers should be rounded to the nearest dollar.
Prepare a contribution format income statement as of April 30.All numbers should be rounded to the nearest dollar. Show costs andrevenues on both a totaland per unit basis down through thecontribution margin.
What costs does the Contribution Margin Income Statement formatisolate (make apparent) that the Traditional Income Statementformat does not?
For the statement you prepared for Part 2, why might it bemisleading to show the fixed costs on a per unit basis?
