Tradition vs. Contribution Income Statement.

15% of your grade in the class: PAPER A - Problem 2- 19 Tradition vs. Contribution Income Statement. PP 57-58 answer Q1-3. Include a cover page, a reference page, and format everything using APA 6th ed. guidelines. Use credible sources (not Wikipedia, Investopedia, or blogs). Upload in Connect

Paper A: Grading Rubric

Contribution (AKA Variable Income Statement) verses Traditional Income Statement

Used to Determine Your Grade

Out of 15 Points

Criterion	Unsatisfactory	Satisfactory	Exceptional	Score In Points
1.Paper is at least 4 pages long, not including title page and references	Does not meet the requirement	Meets the requirement		1 pt
2. Paper includes at least two peer-review scholarly journal articles to support the ethics in this case	Does not meet the requirement	Meets the requirement		2 pts
INTRODUCTION- Page 1: Introduction- Discussed the differences between Contribution (AKA Variable Income Statement) verses Traditional Income Statement	Below the requirement.	Meets the requirement	Exceeds the requirement and is well supported.	2 pt
BODY OF THE PAPER Page 2: Body- Prepared, Analyzed, and Discussed an Income Statement for August using traditional format, with costs organized by function Page 3: Body- Prepared, Analyzed, and Discussed an Income Statement for August using Contribution format, with costs organized by behavior. This income statement is also known as the variable Cost Income Statement CONCLUSION Page 4- Conclusion- Referred to the income statement your prepared in the body of the paper. Why might it be misleading to show the fixed costs on a per unit basis?	Demonstrates a level of knowledge that is below the requirement.	Meets the requirement.	Exceeds the requirement.	10 pts

1.                           Marwick’s Pianos, Inc.,       Income Statement for the month of August, XXXX ____________________________________________________ Sales Revenue (40 pianos x $3,125)                    $125,000 Less : Cost of goods sold (40 x $2,450)                $98,000 Gross Profit                                                     $27,000 Less : Operating expenses           Selling expenses           Advertising                           $700          Sales Salaries & Comm.         $950 + ($125,000 x 8%)        $10,950         Delivery (40 x $30)                $1,200         Utilities                                  $350         Depr. of Sales facilities           $800 Total Selling expenses            $14,000        Administrative expenses        Executive Salaries              $2,500        Insurance                                $400        Clerical $1,000 +(40x$20)     $1,800        Depr. of office equipment       $300 Total administrative expenses   $5,000 Total operating expenses                                   $19,000 Net operating Income                                         $8,000

2.               Marwick’s Pianos, Inc.,       Income Statement for the month of August, XXXX ______________________________________________________                                                                   Total      Per Unit Sales Revenue (40 pianos x $3,125)            $125,000    $3,125 Less : Variable expenses:           Cost of goods sold (40x$2,450)          $98,000    $2,450           Sales Commission $125,000 x 8%       $10,000       $250         Delivery (40 x $30)                             $1,200         $30           Clerical 40 x $20                                  $800         $20         Total variable expenses                    $110,000    $2,750         Contribution margin                           $15,000       $375 Less : Fixed expenses           Advertising                                         $700           Sales Salaries                                      $950           Utilities                                              $350           Depr. of Sales facilities                       $800           Executive Salaries                           $2,500           Insurance                                          $400           Clerical                                          $1,000           Depr. of office equipment                  $300 Total Fixed expenses                                $7,000 Net operating Income                               $8,000

3. Fixed costs remain constant in total but vary on a per unit basis inversely with changes in the activity level. As the activity level increases, for example, the fixed costs will decrease on a per unit basis. Showing fixed costs on a per unit basis on the income statement might mislead management into thinking that the fixed costs behave in the same way as the variable costs. That is, management might 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 a contribution format income statement.