Question

Schrute Farm Sales buys portable generators for $450 and sells them for $740. He pays a sales commission of 5% of sales revenue to his sales staff. Mr. Schrute pays $6,000 a month rent for his store, and also pays $1,800 a month to his staff in addition to the commissions. Mr. Schrute sold 700 generators in June. If Mr. Schrute prepares a traditional income statement for the month of June, what would be his operating income? O A. $518,000 O B. $169,300 O C. $236,700 OD. $203,000

Answer 1

1)

- The correct option is B. $169300

- calculation of operating income

Sales ( 700 × $740 )	$518000
(-) cost of goods sold ( 700 × $450 )	($315000)
Gross profit	$203000
(-) Sales commission ( $518000×5% )	($25900)
(-) Store Rent	($6000)
(-) Staff expenses	($1800)
Operating income	$169300

2)

- The correct option is C. $157500

- At 40000 units, total variable costs is $140000.

- Variable cost per unit = $140000 ÷ 40000 = $3.5 per unit.

- For 45000 units, Variable costs = 45000 × $3.5 = $157500.

3)

- TRUE

- In regression analysis, sometimes the R-squared statistic is referred as the 'goodness of fit' statistic

- if the data points are randomly scattered,the R-square value would be closer to 0 than 1.

4)

- The correct option is D. $6500.

- Fixed maintain cost, using high-low method is computed as follows :

- Variable maintaince cost

= (Cost at high activity - cost at less activity)÷ (High activity - low activity)

= ($15000-$13000)÷(17000 hrs - 13000 hrs )

= $2000÷ 4000 hrs.

= 0.5 per machine hour.

- in march, at 13000 machine hrs, Variable cost is $6500 (13000×$0.5).

- Therefore, Fixed maintainance cost = $13000 - $6500 = $6500.

5)

- TRUE

- In a scattered plot, if the data points were on a straight line, there is a perfect correlation between two variables

- As it was given the data points fall in a fairy straight line, there is a strong relation between the two given variables, cost and volume.

_____×_____

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