Prepare an income statement for november

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Reference no: EM131139256

House of Organs, Inc., purchases organs 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.

House of Organs, Inc., has always kept careful records of its costs. The costs that the company incurs in a typical month are presented below in the form of a spreadsheet:

Costs

Cost 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

Depreciation 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 November, the company sold and delivered 60 organs.

Required:

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

2. Redo (1) above, this time using the contribution margin format with costs organized by behavior. Show costs and revenues on both a total and a per unit basis down through CM.

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?

 

Reference no: EM131139256

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