Use the information below for questions 15) and 16: The University Store, Inc. i

Question

Use the information below for questions 15) and 16: The University Store, Inc. is the major bookseller for four nearby colleges.A quarter of the year is presented below University Store, Inc. Income Statement For the Quarter Ended March 31 Sales Cost of goods sold (all variable costs) Gross margin Selling and administrative expenses Selling Administrative S 800,000 560,000 S 100,000 110,000 210,000 Net operating income S 30,000 4000 42 On average, a book sells for $40.00, Variable selling expenses are $3.00 per book; the remaining selling expenses are fixed. The variable administrative expenses are 5% of sales, the remainder of the administrati expenses are fixed 15) The contribution margin for the University Store for the first quarter is: A) $140,000 B) $700,000 C) $180,000 D) $660,000 16) The net operating income computed using the contribution approach for the first quarter is: A) $140,000 B) SO C) S30,000 D) $180,000 ) In a job-order costing system, the use of indirect materials that have been used for producti recorded to: A) Work in Process inventory: B) Finished Goods inventory. C) Raw Materials inventory. D) Manufacturing Overhead.

Explanation / Answer

15. Contribution margin is obtained by deducting all variable cost from sales

selling price per book is $40 and variable selling expenses are $3 per book, means that variable selling expenses are 7.5% [ (3/40) * 100 ] of sales.

(-) variable selling expenses

( 800,000 * 7.5/100 )

(-) variable administrative expense

( 800,000 * 5/100 )

Option (A) is correct.

16. Net operating income under contribution margin will be same as it is given in the income statement i.e. $30,000. However in contribution margin method net operating income is calculated by subtracting all fixed expenses from the contribution margin.

(-) fixed selling expense

[ total selling expense - variable selling expense = 100,000 - 60,000 ]

(-) fixed administrative expense

[ total administrative expense - variable administrative expense = 110,000 -40,000 ]

Option (C) is correct.

17. In a job-order costing system, the use of indirect material that have been used for production is recorded to Manufacturing Overhead (option D).

particulars $ sales 800,000 (-) variable cost of goods sold (560,000)

(-) variable selling expenses

( 800,000 * 7.5/100 )

(60,000)

(-) variable administrative expense

( 800,000 * 5/100 )

(40,000) contribution margin 140,000

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