Reference no: EM131910003

Problem

Mallory Lapp Jewelry, Inc., purchases diamonds from a large manufacturer and sells them at the retail level. The diamonds cost, on the average, $1,500 each from the manufacturer. Mallory Lapp Jewelry, Inc., sells the diamonds to its customers at an average price of $3,000 each. The selling and administrative costs that the company incurs in a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$964 per month
Sales salaries and commissions	$4,820 per month, plus 3% of sales
Delivery of diamonds to customers	$58 per piano sold
Utilities	$664 per month
Depreciation of sales facilities	$4,900 per month
Administrative:
Executive salaries	$13,494 per month
Insurance	$696 per month
Clerical	$2,496 per month, plus $44 per piano sold
Depreciation of office equipment	$879 per month

During August, Mallory Lapp Jewelry, Inc., sold and delivered 59 diamonds.

Required:

1. Prepare an income statement for Mallory Lapp Jewelry, Inc., for August. Use the traditional format, with costs organized by function. (A "Net operating loss" should be entered as a negative number.)

2. Prepare an income statement for Mallory Lapp Jewelry, Inc., for August, this time using the contribution format, with costs organized by behavior. Show costs and revenues on both a total and a per unit basis down through contribution margin.