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 Selling Administration Net operating income $900,000 635,000 265,000 $101,000 106,000 207,000 $ 58,000 On average, a book sells for $60. Variable selling expenses are $5 per book with the remaining selling expenses being fixed. The variable administrative expenses are 3% of sales with the remainder being fixed. The net operating income using the contribution approach for the first quarter is:

Answer 1

Solution

The correct answer is b) $58,000

Sam's Bookstore

Income Statement For Quarter Ended March 31

Sales		$ 9,00,000 (i)
Variable Expenses :
Cost of goods sold	$ 6,35,000
Variable Selling (15,000 books x 5$ per book) $9,00,000/$60 = 15,000 books	$75,000
Variable Administrative ($900,000 x 3%)	$27,000	$737,000 (ii)
Contribution		$ 163,000 (i-ii)
Fixed Expenses :
Selling $101,000 - $75,000	$ 26,000
Administrative $ 106,000 - $ 27,000	$ 79,000	$105,000
Net operating Income ($163,000-$105,000)		$ 58,000

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