PROBLEM - Contribution Format versus Traditional Income Statement
House of Organs, Inc., purchases organs from a well-known manufacturer 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. The costs that the company incurs in a typical month are presented below:
During November, the company sold and delivered 60 organs.
Required:
1. Prepare a traditional income statement for November.
2. Prepare a contribution format income statement for November. Show costs and revenues on both a total and a per unit basis down through contribution margin.
3. Refer to the income statement you prepared in (2) above. Why might it be misleading to show the fixed costs on a per unit basis?