An income statement for Sam\'s Bookstore for the first quarter of the year is pr

Question

An income statement for Sam's Bookstore for the first quarter of the year is presented below:

On average, a book sells for $65. 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 cost formula for selling and administrative expenses with "X" equal to the number of books sold is:

Sam's Bookstore Income Statement For Quarter Ended March 31 Sales $ 910,000 Cost of goods sold 560,000 Gross margin 350,000 Selling and administrative expenses Selling $ 119,000 Administration 142,000 261,000 Net operating income $ 89,000

Explanation / Answer

Answer

Sales = 910000
Selling Price per book = 65
Selling Expense = 119000
Administrative Expense = 142000
Variable Selling Expense per book = 4

Selling and Administrative Expense = Selling Expense + Administrative Expense
Selling and Administrative Expense = 119000 + 142000
Selling and Administrative Expense = 261000

Variable Administrative Expense per book = 3% * Selling Price per book
Variable Administrative Expense per book = 3% * 65
Variable Administrative Expense per book = 1.95

Variable Selling and Administrative Expense per book = Variable Selling Expense per book + Variable Administrative Expense
Variable Selling and Administrative Expense per book = 4.00 + 1.95
Variable Selling and Administrative Expense per book = 5.95

Number of books sold = Sales / Selling Price per book
Number of books sold = 910,000 / 65
Number of books sold = 14000

Variable Selling and Administrative Expense = Variable Selling and Administrative Expense per book * Number of books sold
Variable Selling and Administrative Expense = 5.95 * 14000
Variable Selling and Administrative Expense = 83300

Fixed Selling and Administrative Expenses = Selling and Administrative Expense - Variable Selling and Administrative Expense
Fixed Selling and Administrative Expenses = 261000 - 83300
Fixed Selling and Administrative Expenses = 177700

Cost formula for Selling and Administrative Expenses is:

Y = $5.95 * X + 177700,

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