Question: Johnny's Auto Dealer purchases used cars at auto auctions and sells them retail. The autos, on average, sell for approximately $19,510 each and cost Johnny $12,410. The costs that the company incurs in a typical month are listed below:
Costs Cost Formula
Selling:
Advertising $3,700 per month
Preparation of Autos for Delivery $650 per auto sold
Sales salaries & commissions $4,350 per month, plus 6% of sales
Utilities $5,100 per month
Depreciation on sales facility $4,400 per month
Administrative:
Executive salaries $13,950 per month
Depreciation on office equipment $2,100 per month
Clerical $3,450 per month
Insurance $1,700 per month
During March, Johnny's Auto Dealer sold 63 autos.
1. Prepare a traditional income statement as of March 31. All numbers should be rounded to the nearest dollar.
2. Prepare a contribution format income statement as of March 31. All numbers should be rounded to the nearest dollar. Show costs and revenues on both a total and per unit basis down through the contribution margin.
3. What costs does the Contribution Margin Income Statement format isolate (make apparent) that the Traditional Income Statement format does not?
4. For the statement you prepared for Part 2, why might it be misleading to show the fixed costs on a per unit basis?