Question

An income statement for Sam's Bookstore for the first quarter of the year is presented below: Sam's Bookstore Income Statement For Quarter Ended March 31 Sales Cost of goods sold Gross margin Selling and administrative expenses $1,000,000 665,000 335,000 Selling Administration $107,000 118,000 225,000 Net operating income $ 110,000 On average, a book sells for $50. Variable selling expenses are $4 per book with the remaining selling expenses being fixed. The variable administrative expenses are 3% of sales with the remainder being fixed. The contribution margin for Sam's Bookstore for the first quarter is:

Answer 1

1)
Sam's Book Store
Unit Sales = $,1000,000/$50	20,000.00	books
Income Statement
Sales		$         10,00,000.00
Less: Variable cost
COGS	$   6,65,000.00
Variable selling ($4 per book × 20,000 books)	80,000.00
Variable administrative (3% of $1,000,000)	$      30,000.00	$           7,75,000.00
Contribution Margin		$           2,25,000.00
2)
Option 2 is correct
Costs can be direct and indirect depending on the cost object like product, department, and others such as division, customer, geographic market.
3)
Prime Cost = DM + DL
Manufacturing Cost = DM + DL + MO
DL	14680
Prime Cost = DL /40% = 14680/40%	36700
Manufacturing Cost = Prime Cost + MO
74600 = 36700 + MO
Manufacturing Overhead = 74600 - 36700	37900
4)
Mark is an engineer who has designed a telecommunications device. He is convinced that there is a big potential market for the device. Accordingly, he has decided to quit his present job and start a company to manufacture and market the device.
A sunk Cost
A sunk cost is cost that is incurred in past will not be consider at present.