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Student Name: DeVante EdmondsClass: ACG2071

Problem 5-11

Requirement 1:

Sales $125,000Cost of goods sold 98,000

Gross margin 27,000Selling and administrative expenses:Selling expenses:Advertising $700Sales salaries & commissions 10,950Delivery of pianos 1,200Utilities 350Depreciation of sales facilities 800

Total selling expenses 14,000Administrative expenses:

Executive salaries 2,500Insurance 400Clerical 1,800Depreciation of office equipment 300

Total administrative expenses 5,000Total selling and administrative expenses 19,000Net operating income $8,000

Correct!

Requirement 2:

Total Per PianoSales $125,000 $3,125Variable expenses:

Cost of goods sold 98,000 2,450Sales commissions 10,000 250Delivery of pianos 1,200 30Clerical 100 20

Total variable expenses 11,000 2,750Contribution margin 15,000 $375

Fixed expenses: Correct! Correct!Advertising 700Sales salaries 950Utilities 350Depreciation of sales facilities 800

Executive salaries 2,500Insurance 400Clerical 1,000Depreciation of office equipment 300

Total fixed expenses 7,000Net income $8,000

Correct!

For the Month of August

Income StatementMARWICK'S PIANOS, INC.

MARWICK'S PIANOS, INC.

For the Month of AugustIncome Statement

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Fixed costs remain constant in total but vary on a per unit basisinversely with changes in the activity level. As the activity level

increases, for example, the fixed costs will decrease on a per unitbasis. Showing fixed costs on a per unit basis on the incomestatement might mislead management into thinking that fixed costsbehave in the same way as the variable costs. That is, managementmight be misled into thinking that the per unit fixed costs would be the

same regardless of how many pianos were sold during the month.For this reason, fixed costs generally are shown only in totals on acontribution format income statement.

Requirement 3: Why might it be misleading to show the fixed

costs on a per unit basis as in Requirement 2 above?

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Given Data P05-11:

Costs Cost Formula

Selling:

Advertising $700 per monthSales salaries and commissions 950 per month plus 8% of salesDelivery of pianos to customers 30 per piano soldUtilities 350 per monthDepreciation of sales facilities 800 per month

Administrative:Executive salaries $2,500 per monthInsurance $400 per month

Clerical 1,000 per month plus $20 per piano soldDepreciation of office equipment 300 per month

Average sales price of piano $3,125

Average cost of piano 2,450pianos sold & delivered in August 40

MARWICK'S PIANOS, INC.