Accounting Hw

House of Organs, Inc. , purchases organs from a well-known maker 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 calendar month are presented below in the tier of a spreadsheet Costs Cost Formula Selling Advertising . . . . . . . . . . . . . . . . . . . . . . . . . $950 per month Delivery of organs . . . . . . . . . . . . . . . . . . $60 per organ change Sales salaries and commissions . . . . . . . . . $4,800 per month, overconfident 4% of sales Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $650 per month Depreciation of sales facilities . . . . . . . . . . $5,000 per month administrative administrator salaries . . . . . . . . . . . . . . . . . . . $13,500 per month Depreciation of office equipment . . . . . . . $900 per month Clerical . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,500 per month, sum $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 initialize with costs organized by function. 2. Redo (1) above, this time using the portion format with costs organized by behavior. Show costs and revenues on both a core and a per whole basis follow up through contribution margin. 3. Refer to the income statement you prepared in (2) above.Why competency it be misleading to show the fixed costs on a per unit basis? SOLUTION 1. House Of Organs, Inc. Income Statement For the Month finish November 30 Sales (60 organs ? 2,500 per organ) $150,000 Cost of goods sold 90,000 (60 organs ? 1,500 per organ) earn margin 60,000 Selling and administrative expenses Selling expenses Advertising $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 descend marketing 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 assoil 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 speed of light Clerical (60 organs ? $40 per organ) 2,400 40 Total variable expenses 102,000 1,700 percen tage 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 nett 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 precipitate on a per unit basis. Showing fixed costs on a per unit basis on the income statement make them issue 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.