An income statement for Sam\'s Bookstore for the first quarter of the year is pr
ID: 2403399 • Letter: A
Question
An income statement for Sam's Bookstore for the first quarter of the year is presented below:
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 net operating income using the contribution approach for the first quarter is:
Sam's Bookstore Income Statement For Quarter Ended March 31 Sales $ 1,000,000 Cost of goods sold 665,000 Gross margin 335,000 Selling and administrative expenses Selling $ 107,000 Administration 118,000 225,000 Net operating income $ 110,000Explanation / Answer
Sam's Bookstore
Income Statement
Variable Costing/Contribution approach
Sales
$1,000,000.00
Less: Variable Cost
Direct Variable cost
$ 665,000.00
Variable selling Expenses
$ 80,000.00
variable Administrative expenses
$ 30,000.00
Contribution Margin
$ 225,000.00
Less: Fixed Expenses
Fixed Selling Expenses
$ 27,000.00
Fixed Administrative expenses
$ 88,000.00
Net operating income
$ 110,000.00
Net Operating Income Using Contribution Approach will also be $ 110000.
This is Because manufacturing expenses are taken to be same as in absorption costing.
Sam's Bookstore
Income Statement
Variable Costing/Contribution approach
Sales
$1,000,000.00
Less: Variable Cost
Direct Variable cost
$ 665,000.00
Variable selling Expenses
$ 80,000.00
variable Administrative expenses
$ 30,000.00
Contribution Margin
$ 225,000.00
Less: Fixed Expenses
Fixed Selling Expenses
$ 27,000.00
Fixed Administrative expenses
$ 88,000.00
Net operating income
$ 110,000.00
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