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 beloww Sam's Bookstore Income Statement For Quarter Ended March 31 Sales Cost of goods sold Gross margin Selling and administrative expenses $950,00 658,800 300,000 $104,000 Selling Administration 112,000 216,00e $ 84,000 Net operating income On average, a book sells for $50 Variable selling expenses are $4 per book with the remaining selling expenses being administrative expenses are 3% of sales with the remainder being fixed ing selling expenses being fixed The variable The cost formula for selling and administrative expenses with "X equal to the number of books sold is Multiple Choice

Explanation / Answer

Sales = $950,000
Selling Price per book = $50
Selling Expense = $104,000
Administrative Expense = $112,000
Variable Selling Expense per book = $4

Selling and Administrative Expense = Selling Expense + Administrative Expense
Selling and Administrative Expense = $104,000 + $112,000
Selling and Administrative Expense = $216,000

Variable Administrative Expense per book = 3% * Selling Price per book
Variable Administrative Expense per book = 3% * $50
Variable Administrative Expense per book = $1.50

Variable Selling and Administrative Expense per book = Variable Selling Expense per book + Variable Administrative Expense
Variable Selling and Administrative Expense per book = $4.00 + $1.50
Variable Selling and Administrative Expense per book = $5.50

Number of books sold = Sales / Selling Price per book
Number of books sold = $950,000 / 50
Number of books sold = 19,000

Variable Selling and Administrative Expense = Variable Selling and Administrative Expense per book * Number of books sold
Variable Selling and Administrative Expense = $5.50 * 19,000
Variable Selling and Administrative Expense = $104,500

Fixed Selling and Administrative Expenses = Selling and Administrative Expense - Variable Selling and Administrative Expense
Fixed Selling and Administrative Expenses = $216,000 - $104,500
Fixed Selling and Administrative Expenses = $111,500

Cost formula for Selling and Administrative Expenses is:

Y = $5.50 * X + $111,500, where Y is Selling and Administrative Expense and X is number of books sold

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