Answer:
1.
Contribution Format Income Statement
Sales (39,000 x $65) $2,535,000
Less: Variable Cost
Cost of good sold (39,000 x $32) $1,248,000
Sales commissions (5% x 2,535,000) $126,750
Shipping Expense ( 39,000 x $4 ) $156,000
Total Variable cost ($1,530,750)
Contribution Margin $1,004,250
Advertising expense $188,000
Shipping Expense $42,000
Administrative Salaries $98,000
Insurance Expense $10,800
Depreciation $68,000
Total Fix cost ($406,800)
Net Income $597,450
2.
Tradition Format Income Statement
Sales (39,000 x $65) $2,535,000
Less: Variable Cost
Cost of good sold (39,000 x $32) ($1,248,000)
Gross income $1,287,000
Sales commissions (5% x 2,535,000) $126,750
Advertising expense $188,000
Shipping Expense ( 39,000 x $4 ) $156,000
Shipping Expense $42,000
Administrative Salaries $98,000
Insurance Expense $10,800
Depreciation $68,000
Total Fix cost ($689,550)
Net Income $597,450
Explanation:
1.
In Contribution margin Format all the variable cost is deducted from the sales value to calculate Contribution margin for the period. After this the fixed costs are deducted to calculate net Income for the year.
2.
In traditional format manufacturing costs are charged to the cost of goods sold which is deducted from the sales value to arrive at the gross income. All the operating expense are deducted from gross income to calculate the net income for the period.
