Alpine House Income Statements

3/17/23, 11:50 AM The Alpine House, Inc., is a large retailer of snow skis.
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Cherokee Inc. is a
The Alpine House, Inc., is a large retailer of snow skis. The company assembled the information shown below merchandiser that
for the quarter ended March 31:
Amount
Kubin Company's
Total sales revenue... $150,000 relevant range of
Selling price per pair of skis... $750
Variable selling expense per pair of skis... $50
Variable administrative expense per pair of skis... $10
Harris Company
Total fixed selling expense... $20,000

manufactures and
Total fixed administrative expense... $20,000
Beginning merchandise inventory... $30,000
Ending merchandise inventory... $40,000
Merchandise purchases... $100,000
1. Prepare a traditional income statement for the quarter ended March 31. 2. Prepare a contribution format
income statement for the quarter ended March 31. 3. What was the contribution toward fixed expenses
and profits for each pair of skis sold during the quarter? (State this figure in a single dollar amount per
pair of skis.)
Solution Verified Answered 1 year ago
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3/17/23, 11:50 AM The Alpine House, Inc., is a large retailer of snow skis. Th | Quizlet
Step 1 1 of 20
In this exercise, the requirement is to prepare traditional and contribution format income statements.
Step 2 2 of 20
An income statement is a financial statement that records the entity's revenues and expenses, with the
resulting net income or loss.
Step 3 3 of 20
A traditional income statement shows the profitability of the company for the year. The cost of
goods sold is deducted from net sales to get the gross profit, which will then be reduced by the
selling and administrative expenses to arrive at the operating income for the period. This format is
used for financial reporting purposes.
A contribution income statement separates variable and fixed costs to arrive at the net income. The
cost of goods sold, and variable components of selling and administrative expenses are deducted
from net sales to get the contribution margin, which will then be reduced by the fixed selling and
administrative expenses to arrive at the operating income for the period. This format is mostly used to
help carry out managerial activities.
Step 4 4 of 20
1. Before the TRADITIONAL INCOME STATEMENT is prepared, the values to be used should first be
determined.
Sales revenue for the quarter amounts to $150,000, as provided.
Cost of Goods Sold is calculated as follows:
Merchandise Inventory, Beg. $ 30, 000

Merchandise Purchases 100, 000

Merchandise Inventory, End. (40, 000)

Cost of Goods Sold $ 90, 000
The cost of goods sold for the quarter is $90,000.
Step 5 5 of 20
The Gross Margin is calculated as follows:
Sales Revenue $150, 000

Cost of Goods Sold
(90, 000)
Gross Margin $ 60, 000

The gross margin or gross profit for the period is $60,000.
Step 6 6 of 20
The number of units sold is calculated as follows:
Total Sales Revenue
Units Sold =
Selling Price per Pair of Skis

$150, 000
=
$750

= 200 pairs of skis
The Alpine House sold 200 pairs of snow skis for the quarter.
Step 7 7 of 20
The Total Selling Expense is calculated as follows:
Unit Variable Selling Expense $ 50
Units Sold × 200
Total Variable Selling Expense
10, 000
Total Fixed Selling Expense 20, 000
Selling Expense $30, 000
The selling expense for the quarter is $30,000.
Step 8 8 of 20
The Total Administrative Expense is calculated as follows:
Unit Variable Admin Expense $ 10
Units Sold × 200
Total Variable Admin Expense
2, 000
Total Fixed Admin Expense 20, 000
Administrative Expense $22, 000

The administrative expense for the quarter is $22,000.
Step 9 9 of 20
Based on the computations above, the income statement in a traditional format can then be
prepared, as follows:
Alpine House, Inc.
Income Statement
For the Quarter Ended March 31
Sales $ 150, 000

Cost of Goods Sold (90, 000)
Gross Margin 60, 000

Less: Selling and Admin Expenses
Selling Expense $30, 000

Admin Expense 22, 000 (52, 000)
Net Income $ 8, 000
The net income for the quarter is $8,000.
Step 10 10 of 20
As shown in the computations, the variable and fixed components of the selling and administrative
expenses are combined. This is because the traditional format separates costs into product (Cost of
Goods Sold) and period cost (Selling and Administrative) rather than into variable and fixed costs.
Step 11 11 of 20
2. Before the CONTRIBUTION INCOME STATEMENT is prepared, the values to be used should first
be determined.
All the individual account values to be used in this format are the same as the traditional. The only
difference is that ALL variable expenses are deducted from sales to arrive at the Contribution Margin.
Step 12 12 of 20
The variable expenses to be deducted from sales to get the contribution margin are cost of goods
sold, variable selling expense, and variable administrative expense. The cost of goods sold is still the
same computation as shown above.
Step 13 13 of 20
The Variable Selling Expense is calculated as follows:
Unit Variable Selling Expense $ 50
Units Sold
×
200

Total Variable Selling Expense $10, 000

The variable selling expense for the quarter is $10,000.
Step 14 14 of 20
The Variable Administrative Expense is calculated as follows:
Unit Variable Admin Expense $ 10
Units Sold
×
200

Total Variable Admin Expense $2, 000

The variable administrative expense for the quarter is $2,000.
Step 15 15 of 20
The Contribution Margin is calculated as follows:
Sales $ 150, 000

Variable Expenses:
Cost of Goods Sold $90, 000

Variable Selling Expense 10, 000

Variable Admin Expense 2, 000 (102, 000)
Contribution Margin $ 48, 000
The contribution margin for the quarter is $48,000.
Step 16 16 of 20
Based on the computations above, the income statement in a contribution format can then be
prepared, as follows:
Alpine House, Inc.
Income Statement
For the Quarter Ended March 31
Sales $ 150, 000

Variable Expenses:
Cost of Goods Sold $90, 000
Variable Selling Expense 10, 000
Variable Admin Expense 2, 000 (102, 000)
Contribution Margin 48, 000

Less: Fixed Expenses
Fixed Selling Expense 20, 000
Fixed Admin Expense 20, 000 (40, 000)
Net Income $ 8, 000
The net income for the quarter is $8,000.
Step 17 17 of 20
As shown in the computations, the variable and fixed components of the selling and administrative
expenses are separated. The sales and cost of goods sold are the same as computed in the
traditional format. The fixed expenses are provided in the problem.
It should be noted that the net income under both formats are the same. The only difference is that
the contribution format separates costs into variable and fixed classifications.
Step 18 18 of 20
3. The contribution margin is the amount of revenue that will cover the fixed cost for the period, and
the remaining as profit of the company. The amount of contribution margin has been determined
above, amounting to $48,000.
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Step 19 19 of 20
The amount of contribution of every pair of snow skis sold to fixed expenses and profits is
calculated as follows:
Total Contribution Margin
Unit Contribution =
Units Sold

$48, 000
=
200 units

= $240
The contribution of every pair of skis sold to fixed expenses and profits is $240.
Step 20 20 of 20
For every unit sold, the margin of $240 will cover fixed expenses and the profit of the company. Fixed
expenses should first be covered, then the remaining will be the income of Alpine. In this case, the
total fixed expense is $40,000, and the contribution margin of $48,000 is enough to cover fixed costs,
leaving a profit of $8,000 for the company.
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3/17/23, 11:50 AM The Alpine House, Inc., is a large retailer of snow skis.

Social Science Economics Finance Related questions

Solution Verified Answered 1 year ago

Sales revenue for the quarter amounts to $150,000, as provided.

Cost of Goods Sold is calculated as follows:

Merchandise Inventory, Beg. $ 30, 000

Merchandise Inventory, End. (40, 000)

Cost of Goods Sold $ 90, 000 ​

The cost of goods sold for the quarter is $90,000.

The Gross Margin is calculated as follows:

Sales Revenue $150, 000

Gross Margin $ 60, 000 ​

The gross margin or gross profit for the period is $60,000.

The number of units sold is calculated as follows:

The Total Selling Expense is calculated as follows:

Total Fixed Selling Expense 20, 000 ​

Selling Expense $30, 000 ​

The selling expense for the quarter is $30,000.

The Total Administrative Expense is calculated as follows:

Total Fixed Admin Expense 20, 000 ​

Administrative Expense $22, 000 ​

The administrative expense for the quarter is $22,000.

Sales $ 150, 000

Gross Margin 60, 000

Selling Expense $30, 000

The net income for the quarter is $8,000.

The Variable Selling Expense is calculated as follows:

Total Variable Selling Expense $10, 000

The Variable Administrative Expense is calculated as follows:

Total Variable Admin Expense $2, 000

The Contribution Margin is calculated as follows:

Sales $ 150, 000

Variable Selling Expense 10, 000

Variable Admin Expense 2, 000 ​ (102, 000) ​

Contribution Margin $ 48, 000 ​

The contribution margin for the quarter is $48,000.

Sales $ 150, 000

Contribution Margin 48, 000

The net income for the quarter is $8,000.

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Glencoe Accounting: First Managerial Accounting for

548 solutions 586 solutions

Financial Accounting Century 21 Accounting: General

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Cost of Goods Sold $ 90, 000

Gross Margin $ 60, 000

Total Fixed Selling Expense 20, 000

Selling Expense $30, 000

Total Fixed Admin Expense 20, 000

Administrative Expense $22, 000

Variable Admin Expense 2, 000 (102, 000)

Contribution Margin $ 48, 000