House of organs, inc., purchases organs from a well-known

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.








House of Organs, Inc., has always kept careful records of its costs.  The costs that the company


incurs in a typical month are presented below in the form of a spreadsheet:








Cost Formula










per month




Delivery of Organs


per organ sold




Sales Salaries and Commissions


per month, plus 4% of sales








per month




Depreciation of Sales Facilities


per month







Executive Salaries


per month




Depreciation of Office Equipment


per month







per month, plus $40 per organ sold








per month





During November, the company sold and delivered 60 organs.










1.  Prepare an income statement for November using the traditional format with costs


     organized by function.



2.  Redo (1) above, this time using the contribution margin format with costs organized by


     behavior.  Show costs and revenues on both a total and a per unit basis down through CM.

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?





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