Exercise 1-15 (Algo) Traditional and Contribution Format Income Statements [LO1-6]

The Alpine House, Incorporated, is a large retailer of snow skis. The company assembled the information shown below for the quarter ended March 31:

 	Amount

Sales	$ 882,000

Selling price per pair of skis	$ 420

Variable selling expense per pair of skis	$ 47

Variable administrative expense per pair of skis	$ 19

Total fixed selling expense	$ 160,000

Total fixed administrative expense	$ 115,000

Beginning merchandise inventory	$ 65,000

Ending merchandise inventory	$ 110,000

Merchandise purchases	$ 295,000

Required:

Prepare a traditional income statement for the quarter ended March 31.                                              

The Alpine House, Incorporated

Traditional Income Statement

To prepare a traditional income statement for The Alpine House, Incorporated, we follow the standard format: 

1. **Sales**: Total sales for the quarter.
2. **Cost of Goods Sold (COGS)**: Includes beginning inventory, purchases, and ending inventory.
3. **Gross Margin**: Sales minus COGS.
4. **Operating Expenses**: Includes both selling and administrative expenses (fixed and variable).
5. **Net Operating Income**: Gross margin minus total operating expenses.

### The Alpine House, Incorporated
### Traditional Income Statement
**For the Quarter Ended March 31**

| **Particulars**                              | **Amount**       |
|----------------------------------------------|------------------|
| **Sales**                                    | $882,000         |
| **Cost of Goods Sold**:                      |                  |
| - Beginning Merchandise Inventory            | $65,000          |
| - Add: Merchandise Purchases                 | $295,000         |
| - Less: Ending Merchandise Inventory         | $(110,000)       |
| **Cost of Goods Sold (COGS)**                | $250,000         |
| **Gross Margin** (Sales - COGS)              | $632,000         |
|                                              |                  |
| **Operating Expenses**:                      |                  |
| - Fixed Selling Expense                      | $160,000         |
| - Fixed Administrative Expense               | $115,000         |
| - Variable Selling Expense (47 * 2,100 pairs)| $98,700          |
| - Variable Administrative Expense (19 * 2,100 pairs) | $39,900  |
| **Total Operating Expenses**                 | $413,600         |
|                                              |                  |
| **Net Operating Income** (Gross Margin - Total Operating Expenses) | **$218,400**   |

---

### Explanation:

1. **Sales**: Given as $882,000.
   - Selling price per pair of skis: $420 → Number of pairs sold = $882,000 ÷ $420 = 2,100 pairs of skis.
   
2. **COGS Calculation**:
   - Beginning Inventory = $65,000.
   - Purchases = $295,000.
   - Ending Inventory = $110,000.
   - COGS = $65,000 + $295,000 - $110,000 = $250,000.
   
3. **Gross Margin** = Sales - COGS = $882,000 - $250,000 = $632,000.
   
4. **Operating Expenses**:
   - Fixed Selling Expense = $160,000.
   - Fixed Administrative Expense = $115,000.
   - Variable Selling Expense = 2,100 pairs * $47 = $98,700.
   - Variable Administrative Expense = 2,100 pairs * $19 = $39,900.
   
5. **Total Operating Expenses** = Fixed + Variable expenses = $160,000 + $115,000 + $98,700 + $39,900 = $413,600.
   
6. **Net Operating Income** = Gross Margin - Total Operating Expenses = $632,000 - $413,600 = $218,400.

---

Let me know if you'd like further clarification or detailed breakdowns of any part of this income statement.

### Further Questions:
1. How would the contribution format income statement differ from the traditional format?
2. What is the impact of changing fixed costs on net operating income?
3. How does the calculation of variable costs per unit affect total expenses?
4. What happens if the company increases merchandise purchases in the next quarter?
5. How does beginning and ending inventory influence the Cost of Goods Sold (COGS)?

**Tip**: Always review changes in inventory carefully, as it directly impacts your COGS and, consequently, the net income.

Exercise 1-15 (Algo) Traditional and Contribution Format Income Statements [LO1-6] The Alpine House, Incorporated, is a large retailer of snow skis. The company assembled the information shown below for the quarter ended March 31:

Sales: $882,000
Selling price per pair of skis: $420
Variable selling expense per pair of skis: $47
Variable administrative expense per pair of skis: $19
Total fixed selling expense: $160,000
Total fixed administrative expense: $115,000
Beginning merchandise inventory: $65,000
Ending merchandise inventory: $110,000
Merchandise purchases: $295,000

Prepare a traditional income statement for the quarter ended March 31.

Prepare a traditional income statement for The Alpine House, Incorporated for the quarter ended March 31, covering sales, cost of goods sold (COGS), gross margin, operating expenses, and net operating income. Learn key accounting concepts and formulas involved in financial reporting.

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