Question

This Question: 2 pts 6 of 40 Schrute Farm Sales buys portable generators for $490 and sells them for $740 He pays a sales commission of 5% of sales revenue to his sales staff. Mr. Schrute pays $2,000 a month rent for his store, and also pays $2,000 a month to his staff in addition to the commissions. Mr. Schrute sold 500 generators in June. If Mr. Schrute prepares a contribution margin income statement for the month of June, what would be his operating income? O A $110,500 O B. $263,500 OC. $102,500 OD. $370,000

Answer 1

Solution:

We need to prepare the Income statement to find out Operating Income

Contribution Margin Income Statement
	$$
Sales Revenue (500 units x $740)	$370,000
Less: Variable Cost
Direct material costs (500 units x $490)	$245,000
Commission (Sales $370,000*5%)	$18,500
Total Variable Costs	$263,500
Contribution Margin (Sales - Variable Costs)	$106,500
Less: Fixed Costs
Rent	$2,000
Commission Fixed	$2,000
Total Fixed Costs	$4,000
Operating Income (Contribution Margin - Fixed Costs)	$102,500

The correct option is C. $102,500

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